After nine months of extensive dialogue between Iraq’s main rival parties, a new cabinet was finally ratified and sworn in on 21 December in Baghdad, just five days before the deadline expired.

The new government is a broader collective of parties than the one formed in 2005 and has been termed by some as more of a unity government than a coalition. Former adversaries are now being forced to work together, which has surprised many political commentators in the Gulf state. 

We don’t have a precedent and we don’t know how well the new government will work

Samuel Ciszuk, IHS Global Insight

The big winner to emerge from the discussions was the incumbent prime minister Nouri al-Maliki. Despite Al-Maliki’s party, the State of Law Coalition, winning 89 seats in the March election compared with its main rival, Al-Iraqiyya which took 92, he still managed to hold on to the prime minister’s role. 

Political power balance in Iraq

Although Ayad Allawi, leader of the Al-Iraqiyya party, missed out on premiership, he will be paid the same annual salary as his rival turned colleague, which is rumoured to be in the region of $360,000. Allawi will head up a 20-member body called the National Council for Strategic Policies that is aimed at counterbalancing Al-Maliki’s security and foreign policy decision-making.

However, analysts will be watching the progress of Allawi’s new council closely to see how seriously it is taken by Al-Maliki. There are fears that the coalition could be at risk if the council is perceived to be a move by Al-Maliki to sideline his main political rival.   

Oil is the facilitator and will provide … money, but Iraq will only really begin to move forward when there is power

Ameen Killidar, MerchantBridge

“We don’t have a precedent and we don’t know how well the new government will work,” says Samuel Ciszuk, analyst with the London-based consultancy IHS Global Insight. “Politics is very personal in Iraq and two ministers on the same level should be able to communicate, but this might not happen with this new coalition.”

The Kurdish politician Jalal Talabani, the incumbent president, was sworn in for another term in December as part of the coalition. While the president’s role in Iraq politics is not as important as that of the prime minister, the semi-autonomous Kurdistan region will be happy that such a pivotal role has been taken by a Kurd once again.

Representatives from Kurdistan played an important role in the formation of the new cabinet and have been rewarded with several key positions in the coalition. The Kurdistan Alliance nominated Roz Nouri Shawes as one of the three deputy prime ministers and Hoshyar Zebari retains his position as foreign minister. What will be interesting is to see how the relationship between Shawes and his fellow deputy prime minister Hussain al-Shahristani develops over the coming term.

When Al-Shahristani was Iraq’s oil minister, his policy of centralising the oil industry frustrated the Kurdistan Regional Government (KRG). The oil licences signed by the KRG with several international oil companies (IOCs) were deemed unlawful by Al-Shahristani, who insisted that all exports must be handled by Baghdad.  

It is still early days so Al-Shahristani’s remit in his new role is relatively undefined. But what is certain is that he will still have close ties to the oil ministry and play a central role in further developing Iraq’s hydrocarbon strategies. 

Oil exports from Iraq

“There was a feeling that Al-Shahristani was going to be potentially sidelined with his new role,” Ciszuk says. “Some people believed that he would strengthen his position for matters in the south of Iraq, but be sidelined from the Kurdish dispute. However, Al-Shahristani made it clear that the new role came with attached powers so you have assume that his position is indeed strengthened.”

Kurdish members of the new coalition government have been lobbying for clarification of the region’s right to sell its own oil. Despite this, several contradictory statements have emerged since December.   

The new oil minister Abdul Karim al-Luaybi, has stated that he expects oil exports from Kurdistan to start in 2011, but a spokesman from the KRG said that an agreement had yet to be reached. Although both parties will be keen to resolve the oil issue, it may still take some time for a resolution to be found.

“Given that Kurdistan played a large role in bringing the government together, this means that the KRG will be looking for a resolution,” says Alex Munton, Middle East upstream research analyst at the UK-based consultancy Wood McKenzie. “The infrastructure is in place and oil has been exported already from Iraqi Kurdistan, the only issue remaining is the commercial arrangements. On saying that, I still believe 2012 seems a more likely timescale for Kurdish oil to start flowing.”

Iraq rebuilding programme

Oil is vital to Iraq’s economy, currently accounting for some 50 per cent of the country’s gross domestic product. The abundance of hydrocarbon reserves means it has the potential to contribute much more.

The new government needs to develop the sector as quickly as possible in order to fund the massive rebuilding programme the country requires. 

Good progress is already being made. Production increased to 2.7 million barrels a day (b/d) in the last few weeks of 2010, from 2.4-2.5 million b/d.

Most of the initial problems for IOCs working in the country have been solved. Oil industry executives are now confident of lifting production to 3.5 million b/d by 2015 and 6 million b/d by 2020. 

The challenge for the new unity government will be identifying where to direct its spending. Almost every sector of the economy requires billions of dollars of investment, from health and housing to utilities and general infrastructure. Iraq has drawn up a five-year National Development Plan that sets out a $186bn investment programme to rebuild the country. While $86bn is to come from Iraq’s private sector and foreign investment, $100bn will be provided from the federal budget. 

Establishing a regular power supply to the population is an essential first step and Iraq is currently tendering contracts for four independent power projects. 

The new plants will provide a total of 2,750MW in additional electricity generation capacity to the country and it is hoped that this will kick start a renaissance in other industrial sectors.

“In terms of employment, power is more important than oil,” says Ameen Killidar, managing director of the London-based investment vehicle MerchantBridge.

The company invests across a number of sectors in Iraq, including telecoms, banking cement and oil and gas. “Oil is the facilitator and will provide the government with money to invest in power infrastructure, but Iraq will only really begin to move forward when there is power,” Killidar says.

One area where Al-Maliki already has had some success is improving security in Iraq. By the end of December, weekly attacks were down to around 45 and fatalities had dipped to below 40.

Security issues in Iraq

Despite these positive signs, there are still areas of concern, with Baghdad experiencing 36 per cent of the violence in 2010 and the Ninawa/Kirkuk region having 30 per cent and the central region with 27 per cent.   

“We can’t close our eyes and we definitely continue to have security issues,” Killidar says.

“However, the government has been extremely successful over the past few years in reducing the number of incidents and thereby allowing for confidence from investors to increase significantly.

“Most businesses are working as normal and we don’t have that many incidents compared to say 2003-05. Restaurants in Baghdad are opening, which is very encouraging for everyone.”

Improving the living conditions of the 23 per cent of Iraqis currently living below the poverty line will also help improve security. Lowering unemployment and addressing the housing shortfall, estimated at 3.5 million units, should cut violence in the country.

Once the new unity government has solved day-to-day issues such as security, it will be able to focus on growing the economy and moving the country forward. Foreign investment and public sector growth will be critical to the long-term recovery.

However, the new government must also realise that as security becomes less of an issue, Iraqis will expect no further delays in the rebuilding of the country.

Politicians will be aware a democracy will not return candidates that have broken promises on jobs, health, housing and education.

Iraq is still has a long way to go before it can put three decades of turmoil behind it and become a strong and respected nation again. What is encouraging, however, is that the new coalition was formed through months of dialogue rather than conflict. This alone is a huge step in the right direction.