Keywords

Economic Challenges, Iraq, Corona Pandemic

Introduction

During the year 2020, the world witnessed a severe demand shock for oil and its derivatives; as a result of the outbreak of the Coronavirus in most countries of the world, especially developed countries, and even countries that did not record injuries also closed the borders, for fear of the virus entering their territories.

This epidemic resulted in paralysis of the global economy alike, due to prevention and home quarantine measures, in addition to the fact that many countries declared a state of emergency. Naturally, these measures led to the suspension of work in most aspects of economic life. Only the services, electricity, and telecommunications sector, led by the health sector, remained engaged, which resulted in the loss of millions of workers and employees around the world. Many countries have taken measures to alleviate the severity of the crisis by granting benefits to the unemployed and distributing aid to families.

As a result of the aggravation of the Coronavirus crisis day after day, its repercussions exceeded the health crisis to include the entire economy, as the signs of the crisis began to be clear in most countries of the world, including Iraq, and its impact in Iraq was not limited to the government level through an increase in the budget deficit as a result of low oil prices but was reflected on all economic interests and at all levels, particularly the private sector and individuals, which portends an additional problem that Iraqi society may face in the next few periods.

Perhaps what may make the crisis more dangerous is the Iraqi economy’s reliance on oil as a mainstay in the state’s public resources, and the economy is one of the most important aspects of measurement of the repercussions caused by the epidemic, as the interests of citizens have been disrupted in a country that suffers from increased poverty rates and the absence of job opportunities, as well as the dependence of a large number of its citizens on daily income, which has become non-existent as a result of the compulsory curfew, with the government’s almost complete inability to provide real measures that would reduce the losses of companies and individuals, as a result of the scarcity of budget resources.

First: The (Corona Virus) pandemic and its economic and financial effects on the countries of the world

The outbreak of the Coronavirus (Covid-19) is not the first time that the world has witnessed an outbreak of an epidemic and the attendant human and economic losses, in 2003 the SARS virus also spread in China, but the Coronavirus turned from an epidemic to a pandemic to spread in most countries of the world, which left negative effects at all levels, as the negative effects of the spread of the emerging coronavirus exceed the direct human losses in the form of the increasing numbers of deaths and infections with the virus, to extend to include many dire economic effects that warn of the possibility of entering the global economy into an unpredictable recession.

With all its repercussions at this moment, this made many countries take unprecedented measures such as closing borders and airports, as well as imposing a curfew in some cities, in an attempt to limit the spread of the virus. As well as, there are the efforts of governments and international economic organizations to mitigate the negative effects of the spread of the virus on the global economy. The most important economic and financial effects on the countries of the world can be summarized as follows:

Economic Growth

The economic effects of the spread of the new Coronavirus are numerous and profound, as it led to a decline in the growth rates of the global economy as a result of three main channels:

First, the supply side is affected by the disruption of production as a result of HIV infections, as well as the measures to contain it.

Second: The demand side is affected globally, especially in the tourism and entertainment sectors.

Third: The spread of these affects globally as a result of the transmission of the virus across borders, as well as a result of the decline in global demand rates in the major industrialized countries and China.

On the other hand, there are some beneficiaries of the spread of the Coronavirus, as carbon dioxide emission rates have decreased as a result of the decline in global industrial activity, as well as the possibility of benefiting many other sectors such as pharmaceuticals, communications, and e-commerce companies.

In light of the outbreak of the Corona epidemic, the International Monetary Fund believes that the current health crisis has a severe impact on global economic activity, and the growth rate of the global economy is expected to contract sharply by 3% in 2020, but the global economy is expected to grow by 5.8% ) in 2021. The Fund expected that the advanced economies, where the epidemic is spreading widely, and the spread of containment measures for the Coronavirus, will witness a decline in growth rates by (-6.1 percent) and reach (4.5%) in 2021. While the Fund expected that emerging markets and economies with all developing countries will face a health crisis, a severe shock in external demand, a major tightening in global financial conditions, and a drop in commodity prices, which will have a severe impact on the economic activity of commodity exporters.

Oil Prices

Oil prices fell, with concerns about global demand for crude and economic growth fueled by the outbreak of the Coronavirus, in light of the non-OPEC producers not yet agreeing on further production cuts to support prices, after oil prices recorded in the international market in early January 2020 by about (66.2) dollars per barrel of Brent crude, and (61.1) dollars a barrel of American crude, but it fell due to the Coronavirus by (13.8 percent) for Brent crude and (14.7%) for American crude, so Brent crude fell on February 24, 2020, to (57.08) dollars a barrel. And US crude reached (52.1) dollars per barrel, and Brent crude continued to decline to (49.5) dollars per barrel on February 28, 2020, while US West Texas Intermediate crude fell to a record 45.44 dollars per barrel.

The Organization of Petroleum Exporting Countries (OPEC) had urged to reduce production with its allies to (1.5) million barrels per day until the end of 2020, after the price of a barrel of oil reached between 19-20 dollars, but the lack of agreement between OPEC and Russia and the price war that it erupted between them at a time of unprecedented decline in global demand due to the closure procedures in various countries of the world following the outbreak of the Coronavirus and the suspension of work in many factories, which led to a significant decline in oil prices. (- 37.63) dollars as a result of oil companies having to rent huge oil tankers to store the excess crude, so the companies are paying buyers to transport the crude oil away from their facilities to avoid paying more money to store it.

These recent events in oil prices led to the return of dialogue to OPEC Plus and the agreement to reduce production, which in turn will lead to a decline in supply, in addition to the decision of the major oil companies in the world and the United States to reduce daily production as well. Despite this, it will not make a big difference, as the world already has a lot of crudes, which is a surplus that is greater than it can be consumed, and the matter does not depend only on the world’s ability to consume this amount of crude, but the biggest crisis is the inability to store it until the current economic restrictions are eased.

The Price of Gold and Other Metals

On March 1, 2020, gold prices in global markets recorded a rise, heading towards achieving their largest weekly gains since late October 2011, due to fears that the outbreak of the Coronavirus will ravage the global economy. As the spot price of gold rose by (0.2%) to record (1674.20) dollars per ounce, and US gold futures rose by (0.4%) to record (1675.20) dollars, and this is because the markets expect more interest rate cuts and by avoiding risks what is happening now amidst the concerns of the markets.

While silver decreased by (0.4%) to record (17.34) dollars, and platinum lost (0.1%) of its value to reach (863.86) dollars. The metal used in automobile exhaust systems fell (13%) on February 28, after hitting an all-time high of $2,875.50 on the last day due to a severe shortage of supply.

International Repercussions and Financial Markets

The outbreak of the Coronavirus has greatly affected the global economy, in other words, China was not affected alone, but these effects included many countries of the world, including the decline of stock exchanges in America and Europe due to Corona’s fears. Among the economies most affected are the European Union (15.5 billion dollars), the United States (5.8 billion dollars), and Japan (5.2 billion dollars), and in light of the continuing fears in the economic circles due to Corona, the economic effects on the Arab oil-producing countries will undoubtedly be negative to a big limit.

The current prices are considered uneconomic in light of the estimates of the budgets of the Arab oil countries, which include the Gulf states in addition to Iraq, Libya, and Algeria, although there are other countries exporting oil and gas, even in small quantities, such as Egypt, these prices mean the continuation of the financing crisis in these countries, and their adoption on loans to finance the budget deficit, especially since most of them in preparing the 2020 budget went to different estimates of oil prices. Saudi Arabia, for example, prepared its budget estimates at $ 55 a barrel of oil, and Algeria at $ 45 a barrel, due to anticipation of the bad scenarios of the trade war crisis between China and America, but if it continues. But if prices continue to fall, there will be another darker reading on the economies of the Arab oil countries, which will have a faster impact on the development of public budgets and the decline in trade.

While the 2019-2020 Corona Virus pandemic also affected the financial markets and left widespread severe economic turmoil, on February 24, 2020, the US Dow Jones Industrial Average and the British FTSE 100 Index declined by more than (3%) after the outbreak of the Covid-19 virus significantly spread. outside of China. This comes after stock indices fell sharply in the European continent, following the significant declines in Asia. The German DAX 30, the French CAC 40, and the IBEX 35 all declined by about (4%) and the FTSE MIB index fell by more than (5%).

This was accompanied by a significant decrease in the price of oil and a significant increase in the price of gold (the highest level in seven years). On February 27 - due to growing concerns about the outbreak of the virus, many US stock indices, including the Nasdaq 100, the S&P 500, and the Dow Jones Industrial Average recorded sharp declines not seen since the 2008 crisis, the Dow Jones index (1119) points in the largest decline since the 2008 financial crisis. On February 28, 2020, stock markets around the world posted their biggest drops in a single week since the 2008 financial crisis.

On March 12, stock markets in the Asia-Pacific region were closed (with Japan's Nikkei 225 index and the Tokyo Stock Exchange down less than (20%), below the 52-week high). European stock markets closed at 11% (the worst one-day drop in history), while the Dow Jones Industrial Average closed at an additional 10% (beating the one-day record set on March 9), and the NASDAQ fell (9.4%), the S&P 500 (9.5%) (With the Nasdaq 100 and the S&P500 also down more than 20% from their peaks), the decline revitalized trading restrictions on the New York Stock Exchange.

Oil prices fell (8%) while US Treasury yields for 10 years and 30 years rose to (0.86% and 1.45%), (the yield curve ended naturally). On March 15, the US Federal Reserve cut the benchmark interest rate by a full quarter of a percentage point to a target range of (0.25%) to (0%), but in response, the S&P500 and crude oil futures fell due to continued market concerns.

Second: The Impact of the Coronavirus on Iraq

Iraqi-Chinese Relations in the Field of Investment

The economic relations between Iraq and China expanded after 2003, to witness every year a jump in expanding its investments in the fields of energy in Iraq, as China seeks to invest billions of dollars in the energy infrastructure in Iraq, especially in the field of Iraqi oil fields in the center and south of the country, as Iraq represents strategic and military importance for the Chinese government, to ensure its grand strategy called (One Belt - One Road), which is supposed to link both Europe and Asia with China by 2050, so any relationship with the countries of the Middle East is very important for China because Its great need for oil and gas imports. China began investing in the large Al-Ahdab oil field in Wasit Governorate in 2008, as well as developing other fields in Bazarkan, Fakkah, and Halfaya in Maysan Governorate, in the southeast of the country.

In addition to all this, the oil refinery project in the port of Al-Faw in Basra, which two Chinese companies, China Power and Norco, are negotiating to implement, and this means that Chinese companies are still the largest investor in Iraq in this field. China's cumulative investments in Iraq exceeded $20 billion, most of which are concentrated in the oil and natural gas field, after the total Chinese investment did not exceed (7%) in 2002, and Beijing strongly participates in the Iraqi oil industry, as the Chinese Petroleum Engineering and Construction Company signed in early 2019. With the Basra Gas Company in southern Iraq, a contract for gas investment in the Artawi field, west of the province, was also signed in early 2020, a contract for the investment of associated gas, in the Halfaya field in Maysan Governorate, southern Iraq, with the Chinese company “Petrogina” to invest (300) million cubic feet of gas. Gas and China also entered the field of railway support in Iraq, after concluding a contract in 2012 to supply (12) high-speed trains, with a value of (138) million dollars, and eight joint agreements were signed between the two countries in 2019 worth more than (500) billion dollars for the ten years. In the coming days, to make China the largest importer of Iraqi oil, in addition to announcing that Iraq will join the huge Chinese project known as the Belt and Road Initiative, a project that increases China's economic influence.

Iraqi-Chinese Relations in the Field of Trade Exchange

The value of Iraq’s trade exchange with China in 2018 amounted to about (30) billion dollars, as the trade balance between the two countries tilted in favor of China in the export of various types of goods and cars to Iraq (Table 1), compared to Iraq’s export of oil, where China enjoys an estimated (800) thousand barrels per day. Iraq is the second-largest producer of crude oil in the Organization of Petroleum Exporting Countries (OPEC), with an average of (4.5) million barrels per day, and the third-largest oil exporter in the world in 2018 after Saudi Arabia and Russia. Iraq exported $91.7 billion of this commodity, which represents (8.7%) of the world's exports which are located in the Middle East.

It is clear from Table (1) that most of the high import rates during the study period came from Asian countries, especially China, due to their low costs, and then Western Europe comes after them. China's imports had the largest share for years (2013, 2014, 2016, and 2018), as the percentage of imports from it reached (18.6%, 32.3%, 36.3%, 26.2%), respectively. As for imports from America, they reached the highest in 2010, reaching (24.7%), while some countries contributed a certain share of imports coming to Iraq, such as (Kuwait, the European Union, Germany....etc.).

Despite the great diversity of imported goods between consumer and investment, they contributed to absorbing the surplus of domestic demand, which was growing. Therefore, it will have a significant impact on Iraq's foreign trade, making Iraq face another economic crisis to be added to the current series of crises. If the virus continues to spread, it will lead to a global economic crisis with a significant increase in the prices of materials and goods, especially (Chinese) and auto parts, electrical and electronic appliances, especially after international shipping companies raised the value of insurances imposed on cargo coming from China, whose value is eventually added to the prices of these goods, in addition to the scarcity of Chinese goods, because international shipping companies have stopped shipping goods to many countries of the world, including Iraq.

Table 1 Percentages Of Iraqi Imports (Non-Oil) According To The Most Important Trading Partners In The World For The Period (2010-2018)