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Iraq's PM-designate hamstrung by Shiite opposition, possible recession: analysts

Energy Transition

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Iraq's PM-designate hamstrung by Shiite opposition, possible recession: analysts

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Adnan al Zurfi has 30 days to form government

Shiite groups already opposed to his appointment

Previous candidate failed to win parliament's vote of confidence

Dubai — Iraq's Prime Minister designate Adnan al Zurfi is hamstrung by Shiite opposition to his nomination and possible recession in OPEC's second-largest oil producer reeling from the coronavirus epidemic and the oil price crash, according to analysts.

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Iraqi President Barham Saleh appointed Zurfi, 54, a former governor of the Shiite holy city of Najaf, to form a government on March 17, after his initial choice, Mohammad Allawi failed to win parliament's vote of confidence as he sought so-called "independent" candidates for his cabinet. Zurfi, who has a dual Iraqi and US citizenship and heads the parliamentary group of former Prime Minister Haider al Abadi, was met with direct opposition from several influential Shiite parties, whose votes he needs in parliament. Zurfi has 30 days to form a government and get parliament's vote of confidence as well.

"Adnan al Zurfi will struggle to form a new government, and strong opposition has already emerged from most of the Shia political factions, as they consider him to be an American appointee," Nour Samaha, a MENA analyst at Eurasia Group, said. "Sunni and Kurdish factions will likely support him. But even beyond this, he faces numerous obstacles in selecting his cabinet members: he will need to address the demands of the protest movement by introducing relatively neutral cabinet members, but also keep the sectarian balance within government in order to secure any sort of consensus."

All of this political infighting over the government is taking place at a critical time for Iraq politically and economically.

US connections

The protests that erupted in October demanding political and economic change only stopped with the outbreak of coronavirus, which is spiraling amid a poor health system and limited financial resources to fight it.

Iraq has been without proper leadership since November, when the government of Prime Minister Adel Abdul Mahdi resigned in face of mounting demonstrations, where dozens were killed. The protests did not stop after his resignation and his government is still functioning in a caretaker capacity although Abdul Mahdi himself has given up his caretaker role.

Zurfi "already faces an uphill battle, and he will need to compromise to the whims of Iraq's political oligarchy if he is to have much hope of getting Council of Representatives approval for his eventual cabinet," Raad Alkadiri, senior director at the BCG Center for Energy Impact, said.

Zurfi's US connections may be his only forte and potential lifeline to Iraq's troubled finances.

He worked closely with the Coalition Provisional Authority (CPA) during the U.S. occupation of Iraq after the 2003 invasion. CPA head Paul Bremer appointed him as Najaf governor in 2004.

Zurfi "might try to stabilize the relationship with the US," Iraq analyst Sajad Jiyad said.

"Perhaps we might come back to the mode where the US is more helpful like in 2014-2017 when they guaranteed some of Iraq's borrowing, helping Iraq sell bonds and ease the cash flow issue."

Possible recession

However, Iraq could be in the grips of a recession amid the political vacuum, coronavirus crisis and the oil price crash.

Although OPEC's second-largest oil producer can pump at will in April after the breakdown of the OPEC+ pact earlier this month, it does not have the ability to produce more due to infrastructure restrictions. Its budget is also already strained by a ballooning public payroll that expanded as the government hired more public sector employees to stymie the protest movement.

"The plunge in oil prices is particularly bad news for Iraq, given its undiversified economy, and a recession there looks inevitable," Maya Senussi, senior Middle East economist at Oxford Economics, said.

Iraq is functioning without a budget this year and is relying on the 2019 one, which projected oil exports of 3.88 million b/d at a price of $56/b, with a fiscal deficit of Dinar 27.5 trillion ($23.3 billion). Current spending in Iraq's 2019 budget of Dinars 133 trillion was seen at Dinars 100 trillion or about 75% of total expenditures, mainly to pay salaries and debt servicing costs. Nearly 90% of 2019 revenues were projected to come from oil income.

"This government may potentially be faced with a bigger welfare burden if the impact of COVID-19 leads to a large-scale health crisis, as is possible," Alkadiri said. "Indeed, a crisis of that sort will test the legitimacy of the political system far more severely than the protests have so far, and cutting current spending under those circumstances would be politically risky."