The Post-Islamic State Marshall Plan That Never Was

KUWAIT CITY —  For the final session of the international Iraq reconstruction conference held here this week, two sets of speeches were drawn up for Iraqi Prime Minister Haider al-Abadi and the United Nations secretary-general to deliver — one in the event that funding targets were met, and another in case they weren’t.

Iraq needs billions of dollars to rebuild after the military defeat of the Islamic State, but the nations expected to step up and shoulder the financial burden of reconstruction have sent a mixed message of support, leaving the final outcome in doubt.

In the weeks leading up to the conference, the threshold for making a public announcement at the conclusion of the event was also rolled back. The original goal of $20 billion dropped to $10 billion, and finally to $5 billion. Even then, it was unclear which speech would be given, according to a source familiar with the preparations.

The World Bank estimates that Iraq needs nearly $88 billion to reconstitute damaged infrastructure, housing, and vital services — much of which is supposed to come from Iraqi government oil revenue. In the end, additional support pledged at the conference in Kuwait raised roughly $30 billion in a complex combination of loans, investment guarantees, and direct investment — short of the goal, but better than expected.

That result was reflected in Secretary General António Guterres’ speech. “The response to this conference and to this appeal is an extraordinary proof of confidence in the government and in the people of Iraq,” he told the audience.

An Iraqi official confirmed the $30 billion estimate but noted that the government had still not received official documentation of the pledges.

Though this final number is considerably higher than originally anticipated, questions remain over whether cash-strapped Gulf states will make good on their promises, and whether private sector companies will begin to ramp up investments necessary to jump-start the country’s economy after years of war.

Iraqi national elections are also scheduled for May, and the government must still shoulder much of the reconstruction burden itself, a proposition heavily reliant on high and stable oil prices.

Already, the International Finance Corporation has estimated that Iraq alone would need to bear at least $50 billion of the expected price tag. That number, said Christian Josz, IMF deputy division chief for the Middle East, would be realistic only if oil prices stayed relatively steady. “The financing gap increases significantly if oil prices drop even a little,” he said during talks on Tuesday.

Still, the conference’s outcome beat many originally dim predictions. “This is an important signal to Iraq and to Abadi going into elections,” said Elizabeth Dickinson, senior analyst for the Arabian Peninsula at the International Crisis Group. “This gives him something tangible to take back to Baghdad and show voters that he can deliver on reconstruction.”

Several foreign officials at the conference, however, noted that contributions were originally expected to be considerably lower. As early as December, said some, it was apparent that the Iraqi government’s original benchmark of raising $20 billion from international donors might be difficult to reach.

“We were strongly encouraging a serious rethink of this,” a Western diplomat told Foreign Policy. “How do you explain to Iraqis expecting a Marshall Plan that you may walk away from an international conference with loans and goodwill but not many direct grants?”

Eventually, after the Iraqi government pressed on with their goal of holding the gathering, the event was renamed from a “donor” conference to a “reconstruction” conference, in large part to draw attention away from the anticipated lack of pledged funds.

Much of the original concern was due to smaller-than-expected pledges from states like Saudi Arabia and the United Arab Emirates.

Initially, Sunni Gulf countries were supposed to shoulder much of the burden for reconstruction efforts, in exchange for taking a back seat in military operations against the Islamic State. While Saudi Arabia, the UAE, Qatar, and Kuwait together eventually pledged $5 billion, they were originally expected to give much more.

According to several Western diplomats, Saudi Arabia in particular was spooked by a short-lived electoral alliance between Abadi and the Iranian-aligned head of the Badr Organization, Hadi al-Amiri. Though the joint coalition dissolved only days after it was formed, some government officials in the United States and Saudi Arabia saw it as further evidence for Iran’s creeping influence in the country.

Fears of sinking billions into an supposedly Iranian-controlled state also combined with basic budget shortfalls among many within the oil-dependent Gulf Cooperation Council. The ongoing war in Yemen has sapped diplomatic and military energy in Saudi Arabia and the UAE in particular, and low oil prices have put a serious dent in government coffers.

Another concern — shared among many diplomatic delegations present at the Kuwait conference — was baseline political uncertainty in the runup to May’s elections. “I think many people are waiting until after the elections,” a senior American official told FP. “They want to know the composition of the government first.”

Still, the fact that any money came through at all is a testament to Iraq’s improved status among many Gulf leaders. “The Gulf countries, particularly Saudi Arabia, Kuwait, and the UAE, see Abadi as someone they can work with,” said Dickinson, of the International Crisis Group.

Security concerns also figured largely in the calculations of potential donors and creditors — as well as the private sector firms that much of the conference was dedicated to wooing. Though the Islamic State no longer controls territory in Iraq, the perceived safety risk is high.

Despite these concerns, a good portion of the Iraqi government’s efforts to rebuild are predicated on high levels of business support — reflecting, in part, U.S. policy preferences. The United States, for instance, did not pledge any direct funds to reconstruction (though it has contributed significant funds to stabilization and humanitarian efforts) but has instead focused most of its energy on facilitating the entry of businesses into Iraq’s market.

There are limitations to this strategy, however. According to security analysts and consultants at the conference, firms frequently pay up to $10,000 a day for protection services when operating in certain parts of the country — an unsustainable number for all but large multinational companies.

Many representatives from the private sector in attendance at the Kuwait conference admitted as much, noting that much of their presence there was primarily about publicity — a demonstration of solidarity with Iraq and Abadi in particular, as well as a chance to network. “There’s not much content here,” said Taif al-Jubouri, a management consultant focused on the region. “We’ve had a lot of these conferences over the past 10 years.”

Similar incentives were at play on the political track. With little originally expected in the way of concrete donations, visibility was the name of the game. “The political theater of this is what matters,” said the Western diplomat. “It reinforces Iraq’s role as the sensible center of the Middle East.”