Iraq Defence and Security Report Q2 2010

While there has been no sudden spike in violence following the US military withdrawal from Iraqi towns
and cities to bases in the countryside in June 2009, the security situation remains precarious after a steady
stream of attacks continuing from the devastating bomb blasts in Baghdad in August 2009. Other notable
incidents include an attack by gunmen that killed 13 people west of Baghdad in November 2009, while in
Kirkuk a car bomb exploded in a market killing at least five. Overall security has improved but tensions
remained high in the run up to the postponed parliamentary elections in January 2010.
The passage of a new electoral law in Iraq was welcomed by US President Barack Obama as an important
milestone in the stabilisation of the country and for the withdrawal of US troops, which is contingent in
part on successful elections. However, Iraqi Vice-President Tariq al-Hashemi, a member of the Sunni
Muslim minority, blocked the legislation and is seeking to increase the number of parliamentary seats set
aside for refugees, most of which are believed to be Sunnis.
Should the rescheduled elections go ahead as planned in March 2010, we expect Prime Minister Nouri al-
Maliki to be returned to office. Diverse political coalitions should provide a check on Maliki’s apparent
growing power, though this will also mean that the policymaking process remains ponderous.
Economically, we forecast real GDP growth averaging 5.8% over the forecast period. Since we published
our Q409 Iraq Business Forecast Report, our growth projections have not materially changed. We have
made a slight downward revision to our oil production projections for the year but the figure remains in
the same area. We still expect the non-oil economy to expand in by 5-6% per annum over the course of
the five-year forecast period.
The improvements in the security situation mean that Iraq is now an increasingly viable investment
destination and Baghdad is keen to welcome in foreign businesses. However, potential investors will face
considerable challenges for years to come. General Electric (GE)’s recent experience highlights some of
the risks: Baghdad is currently unable to pay the US company for equipment already manufactured. Iraq
will likely find the funds in 2010, but the episode could deter other potential investors. Other challenges
include endemic corruption, poor infrastructure, an unsophisticated financial services sector and Iraq’s
cumbersome bureaucracy. Nonetheless, Iraq is luring greater numbers of foreign companies.
In Q309, BMI updated the methodology of its Terrorism Ratings and expanded it to cover 170 global
cities, as well as 130 states. As before, the Terrorism Rating incorporates our analysts’ qualitative view of
the terrorist threat. However, it also incorporates secondary analysis of data on global terrorist incidents
from the US State Department’s Worldwide Incidents Tracking System (http://wits.nctc.gov/) to provide
a quantitative assessment of the risks.