Iraq’s Unaccomplished Mission Mistakes
Iraqi bond yields went to 7.5 percent as prime minister Maliki was replaced in the face of the Sunni ISIS terror group march but refused to enter his Shiite power base into a broader coalition, as the US and allies began a combination of humanitarian air drops and military air strikes to support threatened populations around the Kurdish capital Erbil with its strategic oil facilities. The Islamic insurrection had already captured other fields and the Mosul dam controlling water flow into Baghdad, as export capacity was slashed by the International Energy Agency on continued revenue-sharing and investment disputes between the semi-autonomous northern and central authorities. The former have pressed additional claims to cover the two-thirds the budget going to public sector salaries and pensions, and note their location as the gateway to Turkey where trade and pipeline connections flourished before the ISIS onslaught. Moody’s recently noted the interruption will “materially affect” regional growth with commodity and transport links unlikely to be restored soon. Iranian shares also continued their double-digit slide in response as Shiite solidarity with the Maliki government was overcome by fears of cross-border conflagration as in the Iran-Iraq war decades ago. Nuclear negotiations with the international community were extended several months as the US Congress postponed consideration of resumed sanctions partially lifted under the initial deal. With the Tehran exchange’s average P/E ratio just above 5, foreign investor delegations have arrived in earnest with monthly tourism doubling under the tentative rapprochement. European airlines have revived flights and President Rouhani has stepped up external outreach as with the first state visit to Turkey in twenty years. According to the central bank inflation is below 30 percent with easing effects from the embargo and staple subsidy reform and housing price correction. The rial has again weakened beyond 30000 to the dollar as unification of the multiple exchange rate system is a priority for senior economic technocrats recruited by the administration.
Iraq’s splintering diverted attention from similar tragedy in Libya three years after Qaddafi’s removal as armed factions fighting for power deter hydrocarbon industry and infrastructure rebuilding. The sovereign wealth fund once had over $50 billion in holdings but reclamation has been slow and foreign fund managers have been sued for alleged mismanagement of previous mandates. The civil war there has reverberated into Egypt and Tunisia with security worries and the return of expatriate workers who now face rising food and fuel costs as subsidies are pared. The labor force has tried to redeploy to Saudi Arabia but new immigration restrictions are in operation to preserve non-oil posts for young graduates. Foreign capital inflows to support such employment will be invited early in 2015 as the $500 billion stock market opens to qualified institutions. The Western-trained head of the securities regulator promoted the change which should bring eventual inclusion in the MSCI main index with net allocation estimated at $15-20 billion to satisfy the mission.
