Saturday, October 31, 2015

Iraq's Oil-Driven Financial Crisis Exacerbates Conflict between Prime Minister Abadi and Maliki

By Patrick Martin

Key Take-away: PM Abadi faces resistance over how to address Iraq’s debilitating financial situation caused by a sharp drop in oil prices. The 2016 federal budget is a hotly-contested piece of legislation, as it allocates funding for government ministries. PM Abadi and the Council of Ministers (CoM) approved a draft budget on October 19 and submitted it to the Council of Representatives (CoR) for approval. The CoR will begin reading the budget after the CoR Finance Committee reviews it, a process that does not have a set timeline. PM Abadi and his opponents, including Iranian-backed Iraqi Shi’a militias, are at odds with how much of the budget should go to the militias within the “Popular Mobilization,” whose allocation decreased from the 2015 budget. Iranian proxy militias are thus demanding that PM Abadi increase the share for the “Popular Mobilization.” PM Abadi also introduced a new salary scale to reduce expenditures and increase the pay of the poorest government employees. This has led to a backlash against PM Abadi’s reform agenda, including from his most powerful supporter, Grand Ayatollah Ali al-Sistani, and from PM Abadi’s primary political opponent, Vice President Nouri al-Maliki. The final salary scale will likely be heavily modified from its current form and less effective in reducing expenditures.  PM Abadi’s opponents will use his unpopular measures to obstruct his reform agenda. Maliki in particular will exploit discontent among political blocs with the reform agenda in order to undermine PM Abadi’s authority and bolster his own prominence and profile, and has begun assembling a still-small coalition with potential to vote no-confidence in PM Abadi.

PM Abadi’s political opponents consider PM Abadi’s current strategy to address Iraq’s financial crisis unacceptable. Iranian-backed Iraqi Shi’a militias and supporters of Vice President Nouri al-Maliki oppose the proposed allocation of funding to the “Popular Mobilization” in the federal budget, whose full text has not been released. However, Finance Minister Hoshyar Zebari stated that “20 percent” of the budget pertains to defense. This includes funding allocated to the both the Iraqi Security Forces (ISF) and the militias in the “Popular Mobilization.” Early reports indicate that the budget allocates less funding to the “Popular Mobilization” than the 2015 budget. This number will be significantly less than what notable militia figures requested by up to a third. Kata’ib al-Imam Ali, a powerful Iranian-backed Iraqi Shi’a militia, claimed that the budget allocated only 2.16 trillion. Iraqi dinars as opposed to the 6 trillion. Iraqi dinars in the 2015 budget, or more than 5bn. USD. The figures are likely incorrect, as more reliable reporting puts the “Popular Mobilization” budget allocation for 2015 at 1 billion. USD. Nevertheless, the complaint demonstrates the degree to which the proxy militias and the Iraqi government disagree over the appropriate size of the money allocated for the “Popular Mobilization.” In particular, prominent Iranian proxy militia leader and designated terrorist Abu Mahdi al-Muhandis openly criticized the budget and pinned the blame on PM Abadi. Muhandis insisted that he repeatedly told PM Abadi about the need to increase “Popular Mobilization” funding. An increase in “Popular Mobilization” funding would give the “Popular Mobilization” greater capabilities and heighten their profile at the expense of the ISF.

The decrease in funding for the “Popular Mobilization” comes as part of government-wide austerity measures stemming from Iraq’s acute financial crisis. The figures for the 2016 budget are based upon the price and production of oil, which the budget identifies as 45 USD per barrel. The budget also projects an increase in oil production from 3 million barrels per day (bpd) to 3.6 million bpd. The projected oil price is dramatically less than the basis figure for the 2015 budget, which assumed that the price of oil was 80 USD per barrel. This was unrealistic, as Brent crude prices dropped under 50 USD by the time the 2015 budget passed in January 2015. The smaller budget is technically inadequate, as there is still projected to be a deficit of 21 billion. and 25 billion. USD. The anti-ISIS fight demands so many resources that some ministries have lost significant funding. Muhammad Sahib al-Darraji, the Industry and Minerals minister, complained that his ministry did not receive any funding for 2016 and that he had abstained from the CoM vote on the budget. Al-Darraji is a member of al-Ahrar bloc, which supports PM Abadi’s reform agenda. Other al-Ahrar bloc members did not appear to have abstained from voting.

One of PM Abadi’s mechanisms for reducing expenditures has been the second point of contention, and has drawn the ire of the Iraqi street. The CoM passed a comprehensive reduction in salaries for government employees in order to reduce expenses as a reform package separate from the federal budget on October 13. The reductions affect a large number of Iraqis, as 40 percent of available jobs are provided by the government. This sparked a large backlash from government employees across the country. Those employees at the higher end of the salary scale, such as university professors and employees holding higher degrees, viewed the cuts as unfair.  Some of these higher-earning employees saw their salaries reduced by nearly 20 percent. University professors and employees subsequently staged protests or in some cases gone on strike in Basra, Diwaniya, Muthanna, and Baghdad.

The ensuing backlash is indicative of the first real loss of support from the Iraqi street for PM Abadi. His reform program had otherwise enjoyed widespread support, despite its vastly diminished momentum. Protests against the salary scale have been sporadic and involved few participants thus far, in particular because government employees with the smallest salaries actually received slight pay increases. Salary reductions had also been under discussion for months. The CoM reduced CoM salaries, including PM Abadi’s pay, in July 2015. CoR members later followed suit with a 45 percent reduction in August 2015. PM Abadi first announced the discussions of the new changes to the salary scale on October 5. The discussions involved consultations with the members of the CoM. PM Abadi pointed out that the CoM passed the salary scale changes. The major political parties have representation within the CoM, and thus had prior knowledge and input regarding the shape of the salary scale changes.

PM Abadi’s allies also rejected the salary scale changes. PM Abadi’s reform agenda has benefited from the support of the SLA’s two main political rivals within the Shi’a political sphere: the Islamic Supreme Council (ISCI) of Ammar al-Hakim and Muqtada al-Sadr’s al-Ahrar bloc. ISCI has supported PM Abadi’s reform agenda since August 7, and al-Ahrar since August 9. Their support was largely aimed at undermining the SLA and Maliki in order to improve their own influence within Baghdad and southern provincial governments.  An ISCI member stated on October 28 that ISCI did not support questioning PM Abadi or ending his premiership. However, an al-Ahrar bloc member criticized the salary scale changes as a “red line” and PM Abadi’s reforms as too slow. The Sunni Etihad bloc also rejected the salary scale and PM Abadi’s lack of consultation regarding the reforms, as did the Patriotic Union of Kurdistan (PUK). Major Shi’a, Sunni, and Kurdish parties likely rejected the salary scale to protect themselves from public backlash after initially agreeing to the changes. After all, the CoM has senior representatives from the major political blocs, whose votes were necessary for the reform package’s approval.

More troublingly, Grand Ayatollah Ali al-Sistani’s representative, Abdul-Mahdi al-Karbala’i, rejected the salary scale changes on October 23 in a Friday sermon, calling reductions in the salaries of university professors and educated employees “unfair.” Evidently, Sistani and PM Abadi have not been in lockstep over the required changes to the salary scale. The disagreement is curious as Karbala’i advocated a change to the salary scale in September. Sistani’s support is essential for PM Abadi’s political survival, and the disagreement robs PM Abadi of any realistic chance to see the salary scale changes approved in the CoR in their current form. If the Shi’a religious establishment weakens its support for Abadi, his Shi’a political rivals will sense the opportunity to compete with him for power and influence.

PM Abadi’s political opponents have used the most recent reform package to attack PM Abadi for what they view as his unilateral and non-consultative approach to reforming government. Many of PM Abadi’s opponents had already rejected PM Abadi’s October 20 decision to dismiss CoM Secretary Mahdi al-Alaq, a Dawa Party member of the SLA and an acting appointee who had only held the position for two months. Iranian proxy groups like Badr Organization and Kata’ib Hezbollah, as well as prominent Maliki allies like CoR member Hanan al-Fatlawi, were outraged when PM Abadi replaced Alaq on October 20 with a candidate who holds American citizenship who had previously had disagreements with pro-Maliki Dawa Party members.

Members of the SLA aligned with VP Maliki wrote a letter to PM Abadi on October 27, criticizing his lack of consultation with political parties on the reforms and his “overriding” of the constitution. The complaints over constitutionality were directed at his attempts to eliminate the VP position that requires a constitutional amendment, which ISW documented in August 2015. The members collectively criticized the salary scale changes and PM Abadi’s reform movement on a whole, and stated that they “withdrew their mandate” from PM Abadi and that they were “no longer responsible” for PM Abadi’s actions. This does not mean that Maliki’s allies are intending to attempt to withdraw confidence from PM Abadi. An SLA member denied that the SLA sought to withdraw confidence from PM Abadi, though prominent SLA members have openly speculated about doing so. The Dawa Party political leadership also reaffirmed support for PM Abadi and the reform agenda on October 30. It would be extremely difficult for Maliki to muster the support within the CoR to even attempt a no-confidence vote. However, Maliki and his allies do not actually intend to pursue this course of action right now. Instead, public threats of withdrawing mandates and speculating about withdrawing confidence are threats aiming to discourage PM Abadi from pursuing any additional reforms without including the SLA in the decision-making process.

The SLA letter was the strongest open criticism of the reform movement since PM Abadi launched his first package on August 9. Maliki later openly opposed PM Abadi in a television interview on October 30. Maliki did not specifically mention the salary scale, but he stated that PM Abadi’s reform packages had “no legal force.” He also insisted that the Vice Presidency had not been abolished and that any move to do so would be unconstitutional. The interview was a departure from Maliki’s prior methods of attacking PM Abadi, which largely involved voicing discontent through his allies in the SLA or through coordinated pro-Maliki social media. Maliki will use the rise in vocal opposition to the salary scales to heighten his profile and undermine PM Abadi’s ability to operate independent of Iranian influence and the SLA leadership’s direction.

It is highly unlikely that the salary scale will pass a vote in the CoR in its current form considering the opposition from Sistani as well as both PM Abadi’s supporters and opponents. The salary scale will most likely be modified, but pay cuts in some form across the board may be unavoidable as Iraq’s economy continues to falter. Nevertheless, PM Abadi’s opponents will use the highly unpopular salary scale change as ammunition against him and his performance. In particular, Maliki’s cohorts will continue attacking PM Abadi and obstructing his reforms in the CoR. Their obstinacy forms only one component of a larger trend involving Maliki’s attempts to undermine PM Abadi’s power and set conditions for Maliki’s eventual return to power. This trend will intensify as Maliki attempts to use opposition to the salary scale changes against PM Abadi. It is unlikely that the CoR will attempt a no-confidence vote at this time. Nevertheless, Maliki may be able to exploit the current resistance to PM Abadi’s reforms to solidify opposition to additional reforms in the future. This may force PM Abadi to consult with the SLA before submitting any additional proposals.

It will be equally interesting to see what results from the 2016 federal budget. Iranian proxy militias and their supporters within the CoR consistently advocate for a massive increase in the budget share for the “Popular Mobilization.” Realistically, any increase for the “Popular Mobilization” will require a reduction in the budget allocations for the legitimate security institutions within the ISF. This will result in friction between PM Abadi and his opponents over access to resources. Reallocating resources from the ISF to the “Popular Mobilization” will directly affect PM Abadi’s ability to exercise independent command and control over the security forces by reducing the capacity of the ISF and increasing that of the “Popular Mobilization.” This course of action would result in increased capabilities for militias that are susceptible to Iranian influence. PM Abadi and his opponents competing over access to resources indicate that the budget will not pass the CoR in quick fashion.

The Iraqi state and government faces a grave challenge. The budget crisis makes the status quo intractable, but Abadi is not sufficiently powerful to force changes of this magnitude. In fact, the greatest challenges to his premiership come from within his own political bloc.