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Iraq votes in its first post-ISIS election — and everything is at stake, from the economy to terrorism resurgence

Key Points
  • Iraq's next prime minister will be tasked with navigating Iraq through its myriad challenges, from rebuilding infrastructure to preventing the return of the Islamic State.
  • A failure to tackle corruption and provide jobs — or a return to the sectarian tendencies of previous administrations — could plunge the war-weary country back into violence.
  • This year's election has more than nine parties on the ballot, up from just four in 2014, and forging cross-sectarian alliances will be key to electoral success.

Everything will be on the line when Iraqis cast their ballots on Saturday to choose their next prime minister — from rebuilding the economy to the resurgence of sectarian violence and the Islamic State (ISIS).

Iraq's last parliamentary elections were held in 2014. The past four years have seen Iraq lose a third of its territory to ISIS, then win it back in bloody fighting that left tens of thousands dead and nearly 6 million displaced. The country of 37 million saw huge swathes of its infrastructure destroyed as well as the expansion of Iranian influence and a failed Kurdish independence referendum last fall.

Meanwhile, improved relations with neighbors including Saudi Arabia and promises of investment coupled with higher oil prices have ushered in a sense of cautious optimism in different parts of the country.

A failure to effectively address problems like rampant corruption and a dearth of jobs — or a return to the sectarian tendencies of previous administrations that led to a backlash by marginalized groups and fueled the rise of ISIS — could plunge the war-weary country back into the violence from which it's only just started to recover.

Who is running?

The position of prime minister has been reserved for a Shia, Iraq's majority sect, since the 2003 invasion that toppled Saddam Hussein's Sunni leadership. Current Prime Minister Haider al Abadi, in power since 2014, is running for re-election with his newly formed "Victory" coalition on a bid to reach across sectarian lines.

Abadi is seen as something of a hero in much of Iraq for successfully leading the U.S.-backed offensive that drove out ISIS, as well as putting down a short-lived Kurdish independence struggle in fall of last year. He has also demonstrated an ability to work with an array of opposing interests, balancing relationships with the U.S., Iran and Gulf Cooperation Council (GCC) states for security and investment partnerships.

Peace and security cannot be acheived without reconstruction, says Iraq PM Al-Abadi

He is considered most likely to win, but faces many more competitors than in the last parliamentary contest. This year's election has more than nine parties (also called lists, or coalitions) on the ballot, up from just four in 2014 — including around five Shia parties and several new independent lists.

More than 7,000 individual candidates are running for 329 seats across Iraq's 19 provinces, representing everything from religious parties to communists.

Abadi's top rivals include controversial former prime minister Nuri al Maliki, who is often blamed for the sectarian rule that disenfranchised many Sunnis and led to the empowerment of ISIS in Iraq. Maliki remains among the most powerful figures in Iraq's political landscape, however, and actually rules Abadi's political party, Islamic Dawa.

Maliki remains strongly pro-Iran, as does candidate Hadi al Amiri, whose Iranian-backed Badr Organization is a part of the Popular Mobilization Forces, the Shia paramilitaries that played a vital role in defeating ISIS. Amiri's Badr party has significant Shia support, but is accused by Sunnis and Kurds of sectarian abuses and violence.

Iran will be watching closely — Maliki and Amiri would be its favored candidates, although Abadi also has ties to Tehran. But Abadi's nationalist, pan-Iraqi approach may temper the Islamic Republic's entrenched presence in Iraqi politics. According to Ryan Turner, a senior analyst at risk consultancy PGI Group, "Over the long-term, the growth of a non-sectarian national identity could diminish Iran's influence in the country."

Crossing sectarian lines

It's unlikely that any single candidate will gain a majority — that's a sign of both the fractured nature of Iraqi politics and the diversity of players in this year's election. The leading candidates will likely split the Shia vote, meaning they have to achieve Sunni and Kurdish support in order to win.

This fragmentation likely means tough negotiations in the elections' aftermath, according to Raphaele Auberty, Middle East analyst at BMI research. "Any individual running as prime minister would have to compose with a diverse coalition, which will undermine policy-making," she said.

An Iraqi soldier holds an Islamic State flag during a battle with Islamic State militants, north of Mosul, Iraq.
Ari Jalal | Reuters

But as challenging as achieving some level of national consensus will be, it is critical to Iraq's future. "Working with ethnic and sectarian groups, notably over the reconstruction of areas previously under ISIS control which have suffered high levels of damage, will be crucial to mitigate sectarian tensions in the future, which is in turn crucial for stability."

Rebuilding a broken economy

The UN estimates that 2.6 million Iraqis are still displaced following the bloody three-year battle to drive out ISIS, while 3.2 million have returned to their homes. Iraq's northern and western provinces suffered the vast majority of the damage, with cities like Mosul and Ramadi still laden with improvised explosive devices and other dangerous remnants of war.

The Iraqi government estimated it would need at least $100 billion in reconstruction funds to rebuild the country's lost homes, businesses and infrastructure.

"Corruption, security and fears of political stability are a major concern that must be addressed if Iraq hopes to increase investment," Turner said. Poor public services, weak institutions and lack of economic opportunity have all been further underlying drivers of unrest and violence that Iraqi politicians cannot afford to neglect.

Iraq was placed 169th out of 180 countries in Transparency International's 2017 Corruption Perception Index, with a lower rank reflecting a more corrupt country.

Reconstruction works continue in Mosul, Iraq after 9 months long anti Daesh operations on January 25, 2018.
Hemn Baban | Anadolu Agency | Getty Images

"Oil revenues should be channeled into long-neglected and conflict-battered infrastructure and developing new industries," Turner said, noting the sector's revenue is crucial to reconstruction funding. Significant barriers to the private sector remain, meanwhile, including what investors describe as a dysfunctional bureaucracy and confusing regulations.

'Just do your job'

Economic hardship transcends sectarian lines and is at the forefront of voters' concerns, said Renad Mansour, a Middle East research fellow at Chatham House, speaking to CNBC via phone from Baghdad.

"In speeches, you're not hearing sectarian language. Much more is focused on anti-corruption, providing jobs and services, and improving the economy," he said. "If the next government isn't able to better bridge the gap between the average citizen and leadership, the whole political process will break down again."

And cross-sectarian outreach alone won't solve these problems. "The next government needs to understand how to deliver services, provide jobs, fight corruption. That's not going to come just by having Shiites, Sunnis and Kurds represented in the government."

"People don't care whether you're Sunni or Shia," Mansour added. "Just do your job."

Oil boost — for now

In the meantime, the increase in global oil prices will provide a boost in growth and reduction in credit risk in the near-term, but diversification of the hydrocarbon-dependent economy will be vital, according to Hussain Qaragholi, head of Iraq coverage at Deutsche Bank AG.

"The next Iraqi leader would be prudent to continue the reforms started by Abadi to increase non-oil revenues and reduce the non-oil primary balance as well as continue to implement measures designed to increase transparency with the support of the IMF (International Monetary Fund) and the World Bank," Qaragholi told CNBC.

And assuming Brent oil prices stay above $70 on average for 2018, "Iraq should realize an extra $20 billion in budget surplus."

Iraq's Prime Minister Al-Abadi on providing security for investors

This plus $30 billion pledged from the international community for Iraq's reconstruction, in the form of loan and exports credit guarantees, "should provide international investors with opportunities to invest in Iraq's future development," he said.

One-third of those pledged funds came from Sunni Gulf states — whose investments may be at risk if a staunchly pro-Iran candidate wins on Sunday and backtracks on the multilateral gains the country has made so far.