Oil production is growing, increasing to 4.58 million barrels per day this month
Both businesses and consumers are suffering from higher inflation that is pressuring margins and household income, particularly as transportation and raw material costs spike. Price sensitivity will remain elevated among most consumers, driving MNCs to adjust to this environment and target resilient consumer segments. Robust demand planning and mitigation strategies will be necessary, as political instability clouds the policy direction from the government and private confidence remains shaky at best. Despite this, expect B2B and B2G demand to grow in the coming months, driven by higher oil revenues.
Overview
Sadrist bloc politicians in Iraq’s parliament have resigned amid a prolonged stalemate over the formation of a government, granting the Iran-backed Coordination Framework the majority of seats. Iraq continues to face increasing prices, particularly on food and transportation, with CPI increasing 5.4% in May, as severe water shortages threaten wheat supply. Parliament has approved an emergency food and security bill, which will allow the Iraqi government to divert US$ 17 billion in public funds toward staple food supplies, gas, and electricity. The rebound in oil prices has significantly improved Iraq’s GDP outlook, and oil revenues reached US$ 61.3 billion in H1 2022, almost doubling those of H1 2021.
Our View
Muqtada Al-Sadr’s withdrawal throws the country further into political uncertainty; the Coordination Framework gaining the majority in parliament means the process of forming a new government will be lengthy, and Al-Sadr’s followers are likely to stage protests in the coming months. This, coupled with the increasing likelihood of no US-Iran nuclear deal, will result in further political instability and civil unrest. The new food security bill provides short-term relief from mounting inflationary pressures; however, consumer spending will remain constrained until a full budget is passed, growing at a moderate 2% YOY in 2022 compared to 2.6% in 2021. In parallel, costs will continue to rise in H2 2022, and inflation will reach 6.1% in 2022. Despite higher inflation, oil revenues will provide some relief as government support to consumers expands; increasing oil prices are likely to drive Iraq’s economy to pre-pandemic levels this year, with real GDP growth reaching 8.3% YOY in 2022.
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