Basra’s Neglected Future

Iraq’s southern oil capital could be the country’s richest city, but over a decade of corruption, demographic shift, and insecurity has handicapped its development. 

The oil export terminal in Basra.

In mid-August 2017, Basra governor Majid al-Nasrawi announced his resignation as he faced criminal charges amid a deepening graft scandal surrounding infrastructure contracts for the province. Within hours he had fled to Iran with his son, fueling speculation that his escape had been facilitated by officials within Prime Minister Haider al-Abadi’s cabinet. Speaking on a popular television talk show, one prominent Sadrist Member of Parliament claimed that “[Nasrawi]…was smuggled to Iran. He was tipped off by accomplices in Basra and Baghdad. In the coming days, we will see many more Basra officials linked to corruption charges flee the country.” Other figures have suggested that Baghdad’s powerbrokers permitted Nasrawi’s departure to avoid politically costly judicial proceedings against a member of an allied political party.

The governor’s flight and the speculation it fueled highlighted broader political volatility, factional competition, and lawlessness today threatening to unbalance Iraq’s economically vital south. Baghdad relies on Basra’s oilfields and Persian Gulf export terminal – through which nearly 85 percent of the country’s petroleum is shipped – to fund the government. Yet, Basra and its hinterlands have quietly undergone fundamental governance and socioeconomic transformations since the withdrawal of British military forces in 2009 that could today threaten this revenue. After experiencing five years of rapid infrastructure development followed by shocking decline in late 2014 as oil prices plunged, many Basrawis have been left with a sense of economic dislocation. Widespread corruption and violent conflict between tribal and criminal groups has sapped the region of its development potential, leaving the majority of its young population with few sources of employment or advancement outside the militia networks.

While Iraqi policymakers prioritized military operations to liberate ISIS-held cities in Anbar, Salah ad-Din, and Ninewa, they increasingly lost the ability to enforce rule of law in the south – exacerbating the effects of rising poverty, corruption, and gang-related violence that has handicapped the region for over a decade. Over the past year, tribal competitions have intensified around Basra, and violent clashes between well-armed factions have threatened oil production and export potential. While the south was never exposed to ISIS, southerners have nevertheless experienced the three-year war against the insurgent group in socioeconomic, demographic, and local security terms – as well as the impact of dangerous environmental and political trends that have little to do with the jihadist threat. Basra’s recent history of growth and economic collapse offers insight into the city’s tenuous position today, and the institutional handicaps undermining stability.

Prosperity Whiplash

Given its location and natural resource wealth, Basra could be Iraq’s most prosperous and stable province. It has remained relatively immune from large-scale insurgent activity and lies far from the perimeter of ISIS’s 2014 advance. The region is home to the country’s only ports and its most productive oilfields. High oil prices after 2010 fueled a period of rapid development that seemed to presage a stable future. By early 2011, Basra City boasted new restaurants, movie theaters, and shopping malls visited by families that had found income from new jobs at the South Oil Company (now called Basra Oil Company). The city’s iconic luxury Basra International Hotel, which had been shuttered since the 2003 US-led invasion, reopened that year for wealthy Iraqi and international businessmen looking to benefit from the region’s growth. Within four years, real estate prices had soared beyond the means of many middle- and lower-income Basrawis. In January 2014, the average price of a 1,200 square foot property in central Basra was US$1 million, while rent reached $2,000 per month. These socioeconomic transformations pushed many poorer residents to the city’s under-developed outskirts, where black haze from hundreds of newly-dug oil wells created a permanent cloud over growing slums.

Yet, the whiplash narrative of petroleum-funded growth in Iraq’s oil capital after 2010 belies the uncertain political and economic foundations on which it was premised. Flush with cash from a booming oil sector, the Baghdad government paid billions of dollars in subsidies to international oil companies between 2010 and 2014 to incentivize their expansion into southern Iraq. These companies then paid personnel contractors, who in turn hired young Basrawis to staff refineries and pipeline logistical positions. Endemic corruption and tribal nepotism within southern Iraq’s civil and security administration, however, meant that a significant portion of government funding was siphoned into “protection fees” paid to groups that were in many cases linked to powerful political parties that controlled the city’s economic landscape. These extortive economies – which were operated through provincial and federal ministries, as well as tribal frameworks interwoven within local administrative institutions – helped to subsidize Basra’s informal militia and non-state governance networks. If payments were delayed, these factions would often attack contractors’ camps at oilfields, intimidating local staff and threatening international investors with eviction, additional fees, or violence lest their demands were quietly met.

Neglect Fuels Corruption

Post-2010 expansion provided additional financial cover for methods of non-state control that had proliferated in the south since 2003. In the decade following the US-led invasion, myriad militias and criminal gangs had emerged to siphon oil revenue and direct large-scale smuggling operations in Basra, dominating the city’s commercial life by intertwining with the region’s tribal networks. According to local government security officials, these armed groups at various times controlled 62 floating docks used for oil export and smuggling, while nine separate “security services” operated at the port to extract bribes and fees from contractors, civil administrators, and local businessmen. During their six-year presence in Basra, British military commanders and diplomats tried to establish relations with nearly all of these factions in a bid to avoid clashes – a strategy that empowered armed groups and legitimized their political operators to become arbiters of justice, economic development, and investment in the city absent a strong federal presence.

During the boom years, at which time southern Iraqi oilfields boosted production by nearly 80 percent, the average cost of a bribe increased dramatically to keep pace with available revenue. Until June 2014, many international and Basrawi businesses considered corruption and bribes a necessary budget-item, and most companies preferred to pay tribal militias rather than manage threats from their fighters. With generous subsidies from Baghdad and growing export volume incentivizing waste, many groups – which in 2009 had regularly accepted $100 protection fees from oil contractors and local businesses – by 2014 demanded upward of $10,000 for “permission” to continue operations, expand facilities, or conduct commerce. Graft manifested in logistical and economic networks, as contractors were obliged to purchase supplies like cement, steel, or piping from tribal organizations at two- or three-times the market price.

As global oil prices collapsed and Baghdad faced ISIS’s sweep across northern Iraq in mid-to-late 2014, this fragile balance of corruption, bribery, and security undergirding Basra’s oil-fueled economic growth deteriorated. With Iraqi government subsidies halted and oil revenue halved, the financial resources that had sustained the south’s extortive networks evaporated. Expectations among many tribal and criminal organizations remained, but businesses lacked the capital to meet even half of the continuing demands for payouts. Violence among tribal factions increased as competition for dwindling sources of income exacerbated debt repayment and other disagreements that would have previously been resolved through financial exchange facilitated by local Sheikhs.

Businesses were left with little recourse to manage the impact of these disputes on their operations. By mid-2016, the South Oil Company (SOC) owed its contractors nearly $370 million. This still-unresolved debt had led the Basra Provincial Council to threaten seizure of the organization’s resources three years earlier, in a bid to pressure the Baghdad government to finalize a general budget that allocated a portion of Basra oil revenue back to the region (similar to arrangements with the Kurdistan Region of Iraq).

Post-2010 expansion provided financial cover for methods of non-state control that had proliferated in the south since 2003.

In April 2017, after the creation of the Dhi Qar Oil Company, SOC was downsized and renamed Basra Oil Company (BOC), reflecting continuing demands for local control and the desire of many Basrawi politicians to secure greater financial benefit from their region’s oilfields. The move came partially in response to the provincial council’s inability to support critical services or construction projects for want of dwindling oil revenue; in 2015, for example, Basra’s hospitals reportedly could not afford sufficient supplies of medicine, and city administrators failed to pay contractors for the second year in a row. Smaller businesses and contracting companies reportedly laid-off 30-80 percent of their employees in 2014-2016 after failing to earn the funding to pay salaries, in many cases emptying entire migrant worker camps near the region’s oilfields and pushing many Basrawis out of work.

Movement and Mobilization

Basra’s economic growth and decay coincided with a period of demographic movement in southern Iraq as rural populations from primarily agricultural areas across the region moved into the city’s low-income outskirts. Over the past decade, large swathes of growing land in Basra, Dhi Qar, and Muthanna Provinces have become infertile, due partly to deteriorating water supplies and salinization of the region’s waterways. In late 2014, an Iraqi Government survey indicated that 97 percent of internally displaced persons (IDPs) in Muthanna and 80 percent of IDPs in Dhi Qar cited drought as the primary cause for their displacement from province of origin, with similar figures for rural areas in Basra Province. By 2016, families living in Iraq’s southern regions were at the highest risk for food insecurity, a factor that partially accounted for accelerated displacement from southern hinterland into Basra City.

Rural emigration strained Basra’s capacity to house and provide services for a rapidly-growing low-income population, in turn fueling the expansion of informal settlements and “squatter communities” on undeveloped public land. These slums have provided militia and criminal leaders with a reliable source of manpower since 2003-2007, when impoverished youth coalesced around Shia cleric Moqtada al-Sadr’s Mahdi Army. After ISIS’s advances in 2014, many of the tens of thousands of young men who volunteered to fight in the Popular Mobilization Units (PMU) were drawn from these communities, attracted by promises of high salaries, pensions, and welfare payments for their families if they were killed. Many of the armed factions and political parties that had proliferated inside Basra after 2003 merged with the PMU that year, a move that afforded them legal cover, additional weapons, and new funding sources.

While Basra’s non-state armed groups and their associated political factions consolidated gains after 2014, Basra security deteriorated as government forces moved north to counter ISIS. In late 2014, the Iraqi Army’s 14th Division of approximately 8,000 soldiers, as well as a police battalion of 500 officers, were redeployed to help defend Baghdad, leaving only nine incomplete police battalions and one under-strength army battalion to secure the entire province of approximately three million people. The resultant security vacuum has led to a wave of armed robberies, a resurgence in tribal clashes, and increased rates of drug trafficking from neighboring Iran, often exacerbated by the growing political influence of Shia militia groups operating under the PMU banner.

“The Iraqi government could lose one-third of the northern part of the country to ISIS and survive. It could not survive the loss of Basra.”

Today, many of the Basrawi men who went north with the PMU now look to return home and receive their promised social security payouts. Yet, Baghdad lacks the funding to pay pensions and local authorities remain unable to assert state authority against criminal and militia elements. Meanwhile, financial strain has created new potential sources of local conflict in a highly-militarized environment. Over the past three years, some landlords and tribal elements have demanded higher rent payments from families with relatives in the PMU, many of which live in partially-finished structures or on undeveloped oilfields. Entire communities whose men have been fighting in the north are today being dislocated – worsening financial anxieties, loan repayment disputes, and local conflicts that may escalate in the coming months.

For Iraqi policymakers, failure to reposition military, economic, and political resources to address simmering unrest in the south could have dangerous consequences as PMU fighters return to a city that offers few employment opportunities, dysfunctional governance institutions, and myriad conduits for non-state militant activity. As Michael Knights of the Washington Institute for Near East Policy concluded, “The Iraqi government could lose one-third of the northern part of the country to ISIS and survive. It could not survive the loss of Basra.”

Confronting the Future

Over a decade of weak governance and institutionalized corruption has undermined Basra’s stability, leaving the city’s young population with few opportunities for employment, political representation, or social security. According to local officials, over 50 percent of Basrawis under the age of 30 are unemployed; the city has experienced rapidly increasing rates of methamphetamine addiction, with some young residents dealing drugs smuggled from Iran to earn a relatively stable income. Local officials lack the security and economic resources to reverse these patterns of decay on their own. Many of Basra’s key provincial and city administrative positions have been filled by tribal or militia figures who direct funds toward political parties and factions. Two of the city’s strongest tribal clans – which previously controlled an extensive oil smuggling network during the British occupation – today reportedly head Basra’s largest construction contracting companies working with international firms. “The parties controlling this city only wish to enrich themselves and their patrons; they have no interest in helping ordinary people or working with any other group,” one political science professor at the University of Basra explained. “The militias and tribes have amassed a powerful arsenal of military and political weapons. Now, they have the luxury of time. Baghdad is too weak to counter their influence after fighting [ISIS]. The militias are the government.”

Iraqi policymakers have largely ignored deteriorating conditions in the south. Addressing long-term sources of instability, corruption, and criminal activity there will be critical if Baghdad is to maintain revenue streams ahead of a lengthy reconstruction effort in the country’s war-damaged north. Re-deploying Iraqi Army divisions back to Basra, although a painful prospect for commanders seeking to maintain territories liberated from ISIS, is an important first step to bolster rule of law and establish a sense of relative safety for Basrawis in the short- and medium-term. Efforts to manage or even confront systemic spoilers for development – networks of corruption, tribal patronage systems, and criminal activity – cannot succeed without serious and sustained security engagement from the Iraqi government.

After 14 years of uncertainty and chaos, however, many Basra residents today feel that their region’s future cannot be decided by Baghdad. “I am a citizen of Iraq, but I feel as though my country has abandoned me to organizations that only represent foreign interests,” concluded one Basrawi university lecturer. “Such an environment leads citizens to forget about their responsibility to their compatriots. I fear no country can survive such an attitude.”