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The effect of the Iraqi crisis on the Jordanian economy

Amman / Photo Corbis
Amman / Photo Corbis

The fast-moving events in war-torn Iraq have begun to cast a shadow over much of the economy of the Kingdom of Jordan,amid official and unofficial concerns over what would come out of this crisis, which is as important for Jordan as is the Syrian crisis.

Jordan’s experience with Iraqi political instability is not its first. These problems date back to the war between Iran and Iraq in the1980s, followed by the 1990-1991 First Iraq War and the Operation Desert Storm(1991), waged by US-led coalition forces, and the 2003 American-British invasion of Iraq.The last conflict, in particular, was followed by a huge number of Iraqi refugees flooding into Jordan and wrought significant change in all aspects of the social and economic life of the kingdom.

The Iraqi crisis is also having a devastating effect on the already- battered Jordanian economy as a result of the crisis in Syria. Nearly a million Syrians have fled to Jordan, which has resulted in heavy pressure on all natural resources and economic development in the kingdom. The disruption of Egyptian gas supplies, on which Jordan depends entirely for power generation, caused energy bills to jump by 4.1 billion Jordanian dinars (5.78 billion dollars) in 2013. This accounted for 17 percent of gross domestic product (GDP), according to the Jordanian Ministry of Energy and Mineral Resources.

The most important project under threat is a joint project between the two countries.This 1680-kilometer double petroleumpipeline from Basra to Aqaba has, since the moment of its announcement, had great political, economic, and media importance.The project is seen by some as important for both countries: Iraq is in need of new outlets for its oil exports toworld markets through the port of Aqaba, and traditionally oil-resource-poor Jordan will benefit tremendously from the pipeline crossing through its territory, directly from the Jordan Petroleum Refinery (JOPETROL) in the governorate of Zarqa in central Jordan.

The Iraqi Business Council in Jordan has not ruled out out canceling the entire project in the event of deteriorating security.In a statement to the local press in Jordan, the secretary of the council, Saad Naji, pointed out that “it is a 100 percent investment-based project carried out by contractors working in the private sector. But the continued deterioration of the security situation, especially along the pipeline route may drive them away.”

On 9 April 2013, Jordan and Iraq signed a framework agreement to build the pipeline to transport Iraqi crude oil from Basrato the export port in the coastal city of Aqaba, at the northeastern tip of the Red Sea.The pipeline will be about 1700kilometers long and is expected to be operational in 2017, at an estimated cost of 18 billion dollars, according to the Ministry of Energy and Mineral Resources.

Decreasing oil supply

Wadi Rum, Southern Jordan / Photo Corbis
Wadi Rum, Southern Jordan / Photo Corbis

The supply of crude oil from Iraq to Jordan was cut off late in 2013, coinciding with the onset of armed conflict in parts ofwestern Iraq, through which most tankers carrying oil from Iraq to Jordan must transit. Officials, including the manager of JOPETROL confirmed at the end of June that the refinery has received no Iraqi oil since December 2013, because of the security problems in areas of western Iraq. There are also logistical problems arising from the oil-transfer contract with a local company, which is under the responsibility of the Jordanian Department of Energy. The two countries agreed in 2011 that Iraq would provide Jordan with 15,000 barrels per day, to be increased in the future to 30,000 bpd, along with 1000 tonsof heavy fuel oil. The discount rate of $18 per barrel of crude oil on the world market has recently risen to $20. The discount rate for heavy fuel oil is $78 per ton. This discount, however, shrinks to $5 a barrel because Jordan will be responsible for covering the expenses, including the costs of transport and insurance. The Jordanian government is left with no option but to increase the local prices of petroleum products, due to the high world prices during the last month.

The Jordanian government has adopted a monthly pricing policy for petroleum products. A special government committee will hold a meeting at the end of each month to determine the list prices of petroleum products for the next month, based on world prices during the preceding thirty days and comparing them with those in the previous month, after calculating thecost of transportation and taxes imposed on each product. Since the beginning of July 2014, for example, the government raised theprices of the four basic oil products. The increase in price ranges from 0.7  to 1.1 percent.

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