Abstract
The security situation in Iraq has improved substantially over the past two
years; however, tensions
between Arabs and Kurds could escalate into
ethnic conflict. Iraq can be divided into three broad regions:
the
Kurdistan Regional Government (KRG) controlled territory in northern Iraq
remains safe; the
predominately Shi' a Arab areas of southern Iraq are, by
and large, at peace; but a band of territory
between these regions,
running from Nineveh (and to some extent Anbar) in the west, through
Kirkuk,
Salah al-Deen, and Baghdad in central Iraq, to Diyala in the east,
is still plagued by violence. That said,
levels of violence in these
latter provinces do not compare with 2005-2007 levels, during the height of
the
insurgency.
We expect violence to slowly trend down over the
coming months as the Iraqi Army and Coalition forces
continue to target
al-Qaeda in Iraq, the Islamic State of Iraq, and other Sunni rejectionists who
have been
able to find shelter within the Sunni communities of the
aforementioned restive provinces. Nonetheless,
these outlawed groups will
likely continue to carry out high-profile attacks for some time. Iraqi
unrest
continued in Q209 with bomb attacks in Baghdad and northern cities
during May.
News has been mixed on relations with Iraq' s Kurdish people.
The Kurdistan regional government and the
Iraqi oil ministry reached an
agreement on May 10 allowing the Kurdish region to export oil. That was
followed in early June by the barring of a political party, said to be close
to Kurdish rebels in Turkey,
from upcoming elections in Iraq' s autonomous
Kurdish region.
The Iraqi Security Force (ISF) will be increasingly tested
following the withdrawal of US troops from
Iraqi towns and cities at the
end of June 2009. The evolution of the security situation following this
milestone will provide a useful insight into whether the ISF will be able to
maintain stability following
the final withdrawal of US troops, which will
happen by the end of 2011 at the latest.
We expect Iraq' s economy to
expand robustly over the coming years, and have pencilled in real GDP
growth of 4.5% and 6.0% in 2009 and 2010, respectively. Over the course of our
five-year forecast period
(ending 2013), we see annual growth averaging
5.8%. This represents solid growth, though somewhat
down from our 6.1%
estimate of the previous quarter. This expansion, we expect, will come largely
on
the back of increasing oil production and strong growth in the non-oil
sector.
The much improved security situation is the main factor in our
optimistic appraisal, along with the
prospects for significant investment
into the oil industry over the coming years, and the continued postwar
reconstruction of the country. However, Iraq' s economic prospects depend
crucially on global oil
prices. Our expectations for the global oil market
to pick up in 2010 and onwards are predicated on our
forecast for a
recovery in the global economy: after a contraction of 0.8% in 2009, we see
global growth
rising to 2.0% and 3.5% in 2010 and 2011, respectively. A
quicker economic recovery would likely see
oil prices rebounding faster
than we currently expect, with Iraq' s balance of payments outlook
consequently improving.
This quarter, we have introduced a significant new
aspect to BMI' s Defence Reports, which is the City
Terrorism Rating (CTR).
This assesses the risk of a terrorist attack. The CTR takes into account
the
overall BMI Terrorism Rating for the country in question. It also
incorporates the ' prevalence' of
terrorism, which recognises the frequency
of attacks, and whether the city is a target for terrorists. The
CTR also
recognises the ' threat' of terrorism in terms of the likely numbers of victims
and the ability of
groups to launch sustained campaigns. Not surprisingly,
Baghdad' s CTR figure of 0 is the worst in our
list. This is followed by
Algiers (15) and Tel Aviv (17.5). Although the CTR is 0, the overall BMI
Terrorism Rating of 5 for the country indicates some optimism.
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