Political Risks Remaining Elevated In 2014

BMI View: The level of political violence in Iraq continues to increase. In addition, political divisions over the adoption of a new electoral law could cause delays in parliamentary elections, which are scheduled for April 2014. We reaffirm our view that the country's political blocs will reach some form of agreement which will avoid the descent into outright civil war. We cannot however preclude a further uptick in violence or an eventual partition of the country along sectarian lines.

The level of political violence in Iraq has increased significantly over recent months. Almost 1,000 people were killed and more than 2,000 wounded in Iraq in September 2013 according to the United Nations. Some 887 civilians and 92 members of the Iraqi Security Forces died nationwide, with Baghdad being the worst affected province. Although the death toll was marginally lower compared to July, in which it stood at 1,057, it remained one of the highest of the past several years. Hundreds more were killed in October, bringing the toll in the first 10 months of 2013 to above 6,000. In the latest major development, ten bombings mainly targeting Shiite-majority areas of Baghdad province killed at least 41 people on October 27, while 24 died in other attacks in Iraq in the same day. Recent bombings have included targets in the semi-autonomous Kurdistan region, which has for years been a haven of relative stability. Five explosions at an intelligence office in the regional capital Erbil on September 29 killed at least six people, the biggest attack in the northern enclave since a truck bomb killed 19 people at the interior ministry headquarters in Erbil in 2007.

Levels of sectarian violence will remain elevated over the coming quarters in our view. The Sunni minority - comprising approximately 30% of the total population - feels increasingly sidelined by the government led by Shi'a Prime Minister Nouri al-Maliki. After a popular protest movement which developed since the end of 2012 in predominantly Sunni provinces of the country was crushed by Baghdad, Iraq's radical Islamist insurgency has become increasingly active. Jihadist groups have also been emboldened by the ongoing sectarian war in neighbouring Syria. The radical Islamic State of Iraq and the Levant - an umbrella organization of Iraqi insurgent groups - is growing in strength in Syria, where it can carry out attacks in both Syria and Iraq with relative impunity.

Grim Prospects For Political Stability
MENA - Short-term and Long-term Political Risk Rating, Out of 100

Political Risks Remaining Elevated In 2014

BMI View: The level of political violence in Iraq continues to increase. In addition, political divisions over the adoption of a new electoral law could cause delays in parliamentary elections, which are scheduled for April 2014. We reaffirm our view that the country's political blocs will reach some form of agreement which will avoid the descent into outright civil war. We cannot however preclude a further uptick in violence or an eventual partition of the country along sectarian lines.

The level of political violence in Iraq has increased significantly over recent months. Almost 1,000 people were killed and more than 2,000 wounded in Iraq in September 2013 according to the United Nations. Some 887 civilians and 92 members of the Iraqi Security Forces died nationwide, with Baghdad being the worst affected province. Although the death toll was marginally lower compared to July, in which it stood at 1,057, it remained one of the highest of the past several years. Hundreds more were killed in October, bringing the toll in the first 10 months of 2013 to above 6,000. In the latest major development, ten bombings mainly targeting Shiite-majority areas of Baghdad province killed at least 41 people on October 27, while 24 died in other attacks in Iraq in the same day. Recent bombings have included targets in the semi-autonomous Kurdistan region, which has for years been a haven of relative stability. Five explosions at an intelligence office in the regional capital Erbil on September 29 killed at least six people, the biggest attack in the northern enclave since a truck bomb killed 19 people at the interior ministry headquarters in Erbil in 2007.

Levels of sectarian violence will remain elevated over the coming quarters in our view. The Sunni minority - comprising approximately 30% of the total population - feels increasingly sidelined by the government led by Shi'a Prime Minister Nouri al-Maliki. After a popular protest movement which developed since the end of 2012 in predominantly Sunni provinces of the country was crushed by Baghdad, Iraq's radical Islamist insurgency has become increasingly active. Jihadist groups have also been emboldened by the ongoing sectarian war in neighbouring Syria. The radical Islamic State of Iraq and the Levant - an umbrella organization of Iraqi insurgent groups - is growing in strength in Syria, where it can carry out attacks in both Syria and Iraq with relative impunity.

Tension between Baghdad and the semi-autonomous Kurdistan government show no signs of abating either. In the latest development, Ashti Horami, natural resources minister of the Kurdistan Regional Government (KRG), said in the middle of October that an oil export pipeline between Iraqi Kurdistan and Turkey is near completion and may be online before the end of 2013. Exports via the pipeline could deliver Kurdistan some US$1bn in monthly revenues initially, but local officials are reportedly hoping to ramp up production capacity in the area of 500,000b/d, which could push export revenues up. At this level, Kurdish officials believe they would be insulated from any move by Baghdad to halt financial support for the region, whose entitlement currently stands at 17% of the Iraqi federal budget. As a result, Hussein al Shahristani, Iraq's deputy prime minister for energy affairs, said that Baghdad may stop allocating the share of oil revenue to the Kurdistan Regional Government (KRG). Such a dispute could result in delays in the approval of the 2014 budget, which is currently being reviewed by the Council of Representatives (CoR) - Iraq's parliament ( see 'Expansionary Fiscal Policy In 2014', October 28).

Grim Prospects For Political Stability
MENA - Short-term and Long-term Political Risk Rating, Out of 100

Parliamentary Election Could Face Delays

The CoR voted on October 7 to set April 30 2014 as the latest date to hold the 2014 national parliamentary elections. However, the adoption of a new electoral law could in our view be subject to significant delays, as the debate provides a venue for major political groups to establish conditions that will favour them in the ballots.

A key debate revolves around how votes should be counted. Iraqi Kurds are advocating a single-district system, according to which votes for any political group nation-wide are counted towards the total number of seats. Iraqi Kurdistan President Masoud Barzani called on October 6 for establishing such a system, and threatened a boycott of elections if it is not adopted. However, al-Maliki favours the adoption of a multi-district system, according to which every province in Iraq is counted as a separate constituency and votes in a province are limited to that province. Potential delays may also arise from the debate over national compensatory seats, a pool of seats for all parties to draw upon after elections. Iraqi Kurds are demanding 75 compensatory seats be provided, while the National Iraqi Alliance - an electoral coalition mainly composed of Shi'a Islamist parties - is considering the allocation of 32 seats to all political groups. The seat-allocation system is also proving divisive. Major political groups including the State of Law Coalition, Iraqi Kurds, and the mixed Sunni-Shi'a Iraqi National Movement appear to be attempting to change a relatively proportional system used in provincial elections held in April 2013. Such system allowed smaller political groups to secure seats at the expense of the major groups. According to reports, a new system favouring large political blocs is likely to be adopted, which could result in significant opposition from smaller blocs.

The prospect of a delay in the approval of an electoral law, and the subsequent postponement of elections, could further undermine the legitimacy of Iraq's political party system. Such scenario would be advantageous for hardline Islamist organisations, which have historically benefited from political wrangling among the country's parties to gather strength and increase popular support for their actions. We reaffirm our view that Iraq's political blocs will once again reach some form of agreement which will prevent the country from descending into outright civil war. However, we cannot preclude a further increase in political instability over the coming quarters, which could eventually lead to a return to full blown civil war or a partition of the country along sectarian lines over the long term.

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