Iraq risks rise with violence

January 18, 2012

As political unrest once more seems to be a feature of the new year, with Nigeria and Romania among countries to experience protests, and the death toll continuing to rise in Syria, an increase in violence in Iraq is unnerving investors.

U.S. troops left Iraq at the end of last month, and on Dec 22 there were more than 10 coordinated bombings, followed by several further attacks this year.

Iraq’s tiny stock market was one of the best-performing in the world last year, gaining 30 percent where many emerging markets lost a similar amount. But prices have slipped nearly 5 percent this month.

The yield on the country’s  $2.7 billion bond due 2028, issued in 2006 in a restructuring of commercial creditors’ debt, hit its highest in over two years last week.

Religare Capital Markets says in its 2012 regional geopolitical outlook that:

The outlook for Iraq is bleak…we maintain our view that the Iraqi government will fall apart this year and sectarian violence will escalate.

Consultancy Arabia Monitor also says in its Q1 review that while Iraq has a strong future as an energy post-war reconstruction play:

Iraq’s political challenges will create output volatility as it goes through its transition phase.

But longer term, investors see scope for the financial sector and even tourism, as well as for the country’s obvious commodity attractions.

As oil major Shell’s Iraq country manager Hans Nijkamp told Reuters at the end of last year:

We see opportunities in Iraq going forward and in the longer term — Iraq sits on the third largest oil and gas reserves in the world. We have come back to Iraq to stay there…Shell in Iraq is going to be an Iraqi company and an integral part of Iraq’s oil and gas industry.

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