On Sunday April 15, Iraq hosted its first arms fair in almost a decade. South Korea, which sent a large contingent to the expo, aims to sign a $700 million deal to provide the Iraqi Air Force with two dozen fighter jets.
Recent arms spending mirrors the government’s decisions in other fields including oil. In both these cases, foreign economic and political powers have a vested interest in manipulating Iraq’s decision-making apparatus – a problem for Iraq’s long-term prospects.
This expo is the latest example of the Iraqi government’s recent trend towards allocating large portions of government revenues towards security and armament – approximately 15 per cent of its budget.
For example, in 2008, Iraq spent ten billion dollars on defense contracts, including a large order of US government-made Abrams tanks, and later signed a $7 billion deal to buy thirty-six F-16 fighter jets from US company Lockheed-Martin.
Iraqis do not understand how their government could spend billions of dollars on tanks and fighter jets but continue to neglect glaring problems in civil infrastructure. Today Iraq has inadequate electricity and water supply, scarce and overpriced medical supplies, and travel within the country is dangerous and time consuming.
One could argue that the spending choice reflects the government’s commitment to domestic security, but fighter jet squadrons are not used to patrol streets or secure buildings. Furthermore, no attack on the nation of Iraq would be tolerated by the US, and it seems inconceivable that Iraq is planning to attack any other nation. Instead, it is likely that Iraq’s military spending patterns are subject to foreign influence, and not the will of the Iraqi people.
On one hand, private arms companies that had good relationships with Saddam Hussein have been vocal about re-establishing connections with the new government. Rumen Raykov, the director of Apolo Engineering, a Bulgarian munitions company, recently stated, “We had very good relations with Iraq before 2003 and now we want to renew them, as this is an important market.” They are pressing the Iraqi government for renewed contracts in a climate dominated by US arms companies.
There is also a long history of oil rich Middle Eastern countries spending excessive amounts of their oil income on arms, well beyond conceivable defense needs. Recent spending perhaps signals the reemergence of a close relationship between Iraqi oil revenues and profits of foreign arms companies.
Western oil companies have been locked out of Iraqi production since nationalisation in 1972. The invasion of 2003 reopened the Iraqi markets to foreign oil companies, reestablishing the formerly thriving relationship between Iraq’s oil supply and foreign investment.
Oil revenues constitute 70 per cent Iraq’s GDP and 95 per cent of its government revenues. Therefore the Iraqi parliament urgently needs to adopt a framework for regulation of the oil industry. In the long run, a strong national oil industry would provide the Iraqi government with the highest revenues. However, at the moment, options besides strengthening the national oil industry are being considered.
Western oil companies have pressed the Iraqi government to pass the Iraqi Oil Bill into law. The law would transform the Iraqi oil sector from a nationalised industry into a largely privatised one. It would also allow for the central government to grant contracts without parliamentary approval, bypassing the will of Iraqi voters.
The law would institute Production Sharing Agreements (PSAs), contracts between the Iraqi government and foreign oil companies detailing the percent of profits that each will receive from extraction of Iraqi oil. First, PSAs transfer greater control over the industry to foreign companies at the expense of the national oil industry. Second, the agreements are highly lucrative for foreign oil companies and render them immune to future losses because they will be reimbursed by the Iraqi governments should losses occur. Third, foreign companies operating under PSAs in Iraq are made immune to all future oil legislation. Finally, the PSA agreements weaken OPEC’s pricing decisions. When OPEC cuts production to raise prices, these regulations can only be enforced on a national scale, leaving private oil companies to sell as much as they want at the inflated price.
On April 18, after months of discussion, the Iraqi parliament rejected the proposed Iraqi Oil Law. Days after the decision was made, on April 24, Martin Kobler, Head of the United Nation’s Assistance Mission for Iraq (UNAMI) pressed parliament to reconsider the bill. Kobler attributed the law’s failure solely to the inefficiencies of the Iraqi political system and inadequacies of Iraq’s constitution. He ignored the possibility the decision could be one to limit the power of foreign oil companies and to focus on the development of a national oil industry.
It has always been better in the long run for producing nations to control their own oil industries. Until the 1970s, external pressures, almost without exception, were so strong as to make nationalisation impossible. In step with a rising global trend, Iraq nationalised its own oil industry in 1972. Iraq’s oil sector remained public until the US invasion in 2003.
This recent history of Iraq’s arms and oil industries illustrates the extent to which external intervention compromises internal economic policy. Although this pressure to move away from nationalisation may drive profits up in the short term, these policies are reckless and ultimately unsustainable. Further, what makes this trajectory so dangerous is that policy makers themselves have no metric against which to estimate the scope of the damage: they are not the ones who will suffer in the long term. This short sightedness must be avoided for the sake of the Iraqi people.
The article is written by four Williams College students enrolled in an upper level history class, called "Iran and Iraq in the 20th and the 21st Century," taught by Professor Magnus Bernhardsson, who is a Middle East Scholar and Iraq expert. Under the professor's guidance, they conducted a research on foreign influences in Iraq's post-war government following 2003 and the ways in which Iraq is pressured to use its oil revenues. The team was then inspired to disseminate the course's insights beyond the classroom in the form of this article.