Some people thought Iraq wouldn't be affected by the worldwide economic downturn, says an Iraqi economist. "Those people were stupid." At the very least, they were wrong: Sales of consumer goods are in the basement, along with real estate, and the unemployment rate hovers around 25%. Surpluses from last year's soaring oil prices have cushioned the blow, but by next year the government will "basically run out of money," says a US official.
Add to the collapse in the price of oil—tough on a country that gets 90% of its income from fossil fuels—the end of most US reconstruction aid and the continuing scarcity of foreign investors, spooked by the new round of violence this spring. The outlook for the years to come is scary, and that in turn could undermine stability. "We cannot talk about stable security without economic progress," says PM Nouri al-Maliki.