RENEE MONTAGNE, HOST:
Iraq's fight against the self-proclaimed Islamic State has faced many obstacles, and the latest is falling oil prices. The country's main source of revenue is oil. And as prices go down, the government is finding it hard to pay for its fight against the Islamist militant group. Ben Van Heuvelen is the managing editor of Iraq Oil Report, and he joined us from Sulaymaniyah in the Kurdish region of northern Iraq. Good morning.
BEN VAN HEUVELEN: Good morning.
MONTAGNE: Just how big of a role does oil play in the state revenue?
VAN HEUVELEN: In previous years, oil has generated about 95 percent of Iraq's revenue. So it is the - by far - dominant source of money for Iraq's economy. When the price of oil dropped, Iraq had to drastically cut the amount of spending that it was going to be making. It also has passed a budget that anticipates huge deficits.
MONTAGNE: Well, there's another thing. You are up there in the North. And the Kurdish government there has been waging a battle against ISIS somewhat independent of Baghdad. How are they affected by the drop in oil prices because of course oil is very important up there?
VAN HEUVELEN: They, for much of the past year, have been trying to finance their government spending through independent oil sales. And the value of those sales has also dropped by half, so it makes everything more difficult for them in terms of paying salaries and financing their fight against the Islamic State militant group.
MONTAGNE: In - sort of back to the larger picture, Iraq's government has already been struggling, of course. How is this playing out politically, all of which would affect the fight against ISIS?
VAN HEUVELEN: The conditions existed in Iraq for ISIS to flourish because of a great deal of political dysfunction. Where the financial crisis fits in is that in Iraq, the way that you create political consensus historically has been to distribute the largesse of the state to all these different constituent groups. In other words, you buy off different constituencies in order to create consensus. When you have less revenue to distribute, it makes it a lot harder to create consensus and political reconciliation.
MONTAGNE: And there's something rather curious in all of this. ISIS, the Islamic State, also relies on oil revenue. And so how is this drop in oil prices hurt their ability to fight?
VAN HEUVELEN: My hunch - and it's very difficult to find information reliably from inside their self-proclaimed caliphate - but my hunch is that most of their oil revenue and most of the importance of oil to their operations has to do with sending crude oil that they produce in their territory to refineries that they also operate within their territory.
MONTAGNE: Well, just finally - and this is surely a concern for Western governments who have an interest in seeing Iraq defeat ISIS - are there any signs that the U.S. or other countries would step in with more financial aid to make up for this loss in revenue from oil?
VAN HEUVELEN: This is something that the Iraqi government has been pressing quite a lot with its allies. Certainly in conversations with the United States, they have been asking to be allowed to delay payments on certain military sales, which I understand the U.S. has agreed to. So they have gone out to the international community and asked in various ways, hey, can we get a little bit of a break right now?
MONTAGNE: Ben Van Heuvelen is managing editor of Iraq Oil Report, speaking to us from the Kurdistan region in northern Iraq. Thank you very much.
VAN HEUVELEN: Thank you.
MONTAGNE: And this is MORNING EDITION from NPR News. I'm Renee Montagne.
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