While Arab stocks rally on the war and local firms bag lucrative contracts, analysts say a rebuilt Iraq will be a powerhouse that could eventually dwarf the region's other economies.
It may be too early to talk about the dawn of the Iraq decade, but all the pieces will eventually be in place for the sleeping giant of Baghdad to become a dominant economic force in the Middle East in the future.
PHOTO: AP
In addition to the world's second-largest oil reserves after Saudi Arabia, Iraq boasts a highly educated workforce and a relatively high percentage of farmable land, providing a solid base for its agriculture sector.
"For the long term it will be a negative for the other nations in the Gulf," says Ali Al-Nimesh, an economist in Kuwait.
"The main thing is the oil price. Once Iraq is fully producing and exporting, prices will go down. Income from the oil sector could be reduced by 20 to 25 percent in the other Gulf nations' budgets."
So far, the war that brought about the fall of Saddam Hussein has been a boon for the region's pocketbooks.
The Kuwait stock exchange hit an all-time high before a slight correction last week, while the Saudi bourse has chalked up five straight weeks of gains and saw its capitalization top US$100 billion for the first time ever this month.
Meanwhile, Kuwaiti firms are already reaping the benefits of the government's support for the war -- the emirate was the main ground base for the invasion -- by landing contracts to provide water, food and services across the border.
The Middle East Economic Digest reported that Kuwait's Kharafi National won the deal to lay the Friendship Pipeline to deliver up to one million litres of drinking water daily to the Iraqi port of Umm Qasr, and Kuwait Pipe Industries was subcontracted to provide the material.
While that makes for a rosy picture now, analysts underline that it will be the Americans and not the Iraqis who decide how the lucrative deals for reconstruction are doled out.
"The private sector is overly optimistic. They want to sell something now, but in their hearts they know that the decision making process is not in the hands of the Iraqis," says Jassem Saddoun, from Kuwait's Al-Shall consultancy.
"If you look at the Kuwait stock prices, it's been motivated by an exaggeration of the possible gains in the rebuilding process," he says.
"It would be totally different if the United Nations was managing the effort," says Ihsan Bu Hulaiga, a leading Saudi economist. "American firms will get the biggest prizes. There will be only minimal leftovers to pacify other countries."
Major rebuilding contracts have already been awarded to Bechtel and Kellogg Brown and Root, two US firms with strong political connections. KBR is a subsidiary of Halliburton, formerly chaired by US Vice President Dick Cheney.
Even if the Gulf states do end up sharing a considerable slice of the Iraqi pie, however, it is the prospect of Iraq's oil taps once again flowing at full throttle that has some business nerves in the region on edge.
"OPEC is already over-producing and the seasonal demand is now lessening," says Bu Hulaiga. "Add in the extra from Iraq and it's a natural situation for a breakdown."
Nimesh says that Kuwait in particular is underprepared for the day when Iraq's battered oil infrastructure is repaired, UN sanctions are lifted and its northern neighbour wakes up from decades of central planning.
"We have no plan. They are doing well in Kuwait right now. In the short term, it's great profits, great returns. But long term, look at the oil sector. Prices will not go up, so how can the future be a positive?" he says.
For years, Baghdad evaded its UN quotas on production through smuggling, and the loss of that under-the-table stream is also expected to have its impact.
"The whole region will start to feel it. In Jordan and Syria and Turkey, the loss of smuggled oil and the various side deals will have their effect," says Saddoun.
Amid the jitters over oil, there is also uncertainty over the future government in Iraq and what kind of political stamp the US puts on it.
Washington is already seen to be struggling with Iraq's fractious opposition groups while the Iraqi streets are already echoing with calls for the Americans to simply do the necessary repairs -- and then get out of town.
But a politically unstable Iraq would be sure to wreak further havoc in a region desperate for more stability, especially as the White House ups the rhetoric over Syria so soon after the war.
"If the Iraqis turn out to be largely against the occupation, investors will fear the destabilisation," says Saddoun. "Everyone wants to see what the Americans are going to do, and the picture is not at all clear."
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