The country’s political uncertainty will persist well into 2023
Iraq’s political crisis will weigh heavily on the country’s business environment. B2C demand will stagnate as Iraqi citizens continue to face elevated inflation alongside political insecurity, driving price sensitivity and decreasing out-of-home consumption among most consumers. B2G and B2B demand may be driven by oil revenues but will remain largely constrained as uncertainty continues to dampen foreign interest and the government is unable to pass a budget. MNCs may need to consider contingency plans, as high uncertainty will likely prevail, with logistical challenges persisting in the short term.
Overview
After weeks of relatively peaceful protests in Baghdad’s Green Zone, Al Sadr announced his withdrawal from politics. The Shiite cleric’s decision follows the retirement of spiritual leader Ayatollah Kadhim al-Haeri, whose followers include many Sadrists, but who called on his followers to pledge their allegiance to Iran’s Ayatollah Ali Khamenei. Deadly clashes followed, with more than 30 dead and hundreds injured. Al Sadr’s supporters have since withdrawn from the Green Zone following his calls for de-escalation, but heightened tensions are still festering in Iraq.
Our View
Political uncertainty will persist well into 2023. A best-case—but highly unlikely—scenario is that The Coordination Framework, Al-Sadr’s opposition that currently has a majority in parliament, may try to form a government, a process that would take months. Another potential outcome is increased pressure on Iraq’s judiciary to dissolve parliament, which would lead to a new round of elections. Another increasingly likely scenario is that the current deadlock persists, leading to nationwide protests and further escalation. Amid such political uncertainties, one thing remains certain: Iraqi citizens will feel the weight of this stalemate for months to come, with worsening consumer sentiment and constrained government spending that is preventing state institutions from addressing the country’s vast economic and environmental challenges.
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