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German Help for Iraq?

"As a result of the war," the German Economics Ministry notes [German link], "German exports to Iraq fell by 49.3% in 2003." To be more precise, it should have said that "as a result of the war" the good contacts in Iraqi ministries disappeared that had previously seen to it that contracts were awarded to German firms. At first, German authorities made no effort whatsoever to establish good relations with the new Iraqi government or the autonomous Kurdish government in the North, either because they assumed that Iraq would anyway soon be a failed state or -- which is likelier -- out of pure spite and haughtiness.

Contrary to the German prognoses, however, in 2007 the situation in Iraq began to stabilize. Billions have been invested in the country's reconstruction, while the central government and the Kurds in the north have begun to auction off rights to develop and exploit their oil reserves. This process has gone on almost entirely without German participation. But the pressure to open up the Iraqi market also to German firms has grown so great that Iraq could no longer be ignored. Almost as soon as new American President Obama had taken office, Foreign Minister Steinmeier and Peter Gauweiler were sitting in a plane to Baghdad. Herta Däubler-Gmelin was on her way to Kurdish north Iraq Herta Däubler-Gmelin was on her way to Kurdish north Iraq. "The German delegation wants to do everything possible to insure that the relationship between Germany and Iraq improves," the Süddeutsche Zeitung reported on the Steinmeier visit, "in anticipation of a time when U.S. soldiers are no longer patrolling in Baghdad."

But perhaps the German representatives have arrived a bit late. As a consequence of the general evolution of world markets, the economic situation in Iraq is significantly worse than it was a year ago. Over 90% of Iraqi government expenses are covered by oil sales. At oil prices of over $150 a barrel, this source of revenue was giving generously and contributing to the general prosperity. But with falling oil prices, which recently went as low as barely over $40 a barrel, public revenues likewise have fallen. The resulting shortfalls in the Iraqi budget will have direct consequences for the population and hence in turn for the country's stability. For despite all talk of economic liberalization, the old oil-based rentier economy has gotten reestablished throughout Iraq and so too the well-known forms of dependence and clientelism that come with it. There are 1.28 million people employed as civil servants just in the Kurdish autonomous region alone, a region whose total population is 4.5 million or at most 5 million. This means, on the one hand, that an independent private market is practically non-existent and, on the other, that such a large part of the regional government's $800 million budget must be reserved for paying salaries that practically nothing is left over for economic development projects. If the oil revenues from Baghdad ever fail to materialize, the Kurdish region faces bankruptcy.

Things look no better in the other parts of the country. The enormous build-up of the security apparatus implies unproductive costs that can no longer be covered as the oil price sinks. And this is to say nothing of the foreseeable social consequences of the economic distress. Oil-based rentier economies are little disposed to democratic rule: among other reasons, since in economically good times they do not depend on their citizens as producers and taxpayers. In bad times, on the other hand, the citizenry costs money that is not available. Arab socialism has a classic answer to this problem: war and the decimation of the population.

In light of the foregoing, the German offer to help with "infrastructure" makes some sense even in a period of economic crisis. Even the poorest dictator has always been able to find financing for the kind of goods that the Middle East prefers to obtain from German firms. The situation in Iraq has not yet reached this point. But there are signs that it could -- and their names are Steinmeier, Gauweiler, and Däubler-Gmelin.

Translated from German by John Rosenthal

An earlier version of the above article appeared in German in the April issue of the monthly Konkret.