Headline: Iraq Warned to Diversify Economy and Reduce Oil Dependency to Ensure Future Prosperity
The Challenge: Slow Adaptation to Shifting Global Energy Landscape
Iraq possesses significant oil reserves that could last for another century at current extraction rates. However, as the world increasingly focuses on transitioning away from hydrocarbons, Baghdad has been sluggish in adapting to these changes. The energy industry has long been urged to reduce greenhouse gas emissions and support the goal of limiting global temperature rise to 1.5 degrees Celsius above pre-industrial levels. In April, G7 countries committed to accelerating their exit from fossil fuels, aiming for carbon neutrality by 2050 at the latest. Yet, oil sales still account for 90% of Iraq’s budget revenue, leaving the country overly dependent on this sector.
The Consequences: Vulnerability to Oil Price Fluctuations
Iraq’s heavy reliance on oil makes its economy highly susceptible to oil price fluctuations. Political scientist Ammar al-Azzawi emphasized the urgent need to diversify Iraq’s economy by developing its industrial, agriculture, and tourism sectors. By doing so, Iraq can reduce its dependence on oil revenue and prepare for a future when alternative energy sources become the norm. The European Union’s announcement to stop selling combustion engines in new cars by 2035 further emphasizes the need for Iraq to seize the moment and transition away from oil.
The Urgency: Addressing Climate Change Impacts and Economic Challenges
Iraq is already experiencing the consequences of climate change, including prolonged droughts and frequent sandstorms. The United Nations ranks Iraq as one of the five most affected countries by certain climate change impacts. The COVID-19 pandemic highlighted the downsides of oil dependence as global demand plummeted, leading to a significant drop in export revenues and a doubling of poverty rates. Iraq’s heavy reliance on oil also hinders its ability to invest in other sectors and rebuild infrastructure. The World Bank stressed that Iraq must take advantage of the current high oil prices to initiate reforms and diversify its economy, as delaying such actions would only make future reforms more costly and challenging.
The Roadmap: Diversification and Investments for Green Growth
To achieve “green growth,” Iraq needs to invest an estimated $233 billion until 2040, according to the World Bank. This includes funding to enhance the private sector’s role in the economy and reform the struggling electricity sector. Efforts are underway to reduce gas flaring, a harmful practice in crude extraction, and Iraq aims to have renewable energy sources meet one-third of its electricity needs by 2030. The country has signed contracts for solar power projects, but it still lags behind in adopting electric vehicle technology. Infrastructure limitations in the electricity sector pose challenges for the widespread adoption of electric vehicles. However, Iraq’s government remains committed to diversifying the economy and reducing oil dependency over the next decade.
The Future: Balancing Economic Development and Environmental Sustainability
Iraq faces the dual challenge of sustaining economic development while embracing environmental sustainability. The transition away from oil dependence requires long-term planning, investment, and the cultivation of alternative sectors. It is crucial for Iraq to seize the opportunity presented by high oil prices and embark on a path toward a diversified economy. By embracing green growth and investing in sectors like agriculture, major projects, and associated industries, Iraq can reduce its reliance on oil in the coming decades. While challenges lie ahead, Iraq has the potential to reshape its economy and ensure a prosperous future beyond oil.
SOURCE: Ref: Baghdad AFP
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