The economy of Iraq will contract this year due to fighting ravaging the country, the International Monetary Fund said on Tuesday, slashing its earlier projection of a healthy growth.
Jihadists from the Islamic State group seized swathes of territory in oil-rich Iraq and neighboring Syria in an offensive, and a US-led coalition has been launching strikes against the group. In the month of October, IMF said that Iraq's gross domestic product is forecast to shrink by 2.7 percent this year, down from the 5.9 percent growth it forecast in April.
The fighting has prevented Baghdad from exporting oil to Turkey via pipeline and to Jordan by road. It said Iraq's oil-dependent economy, which grew by 4.2 percent last year, is projected to resume growth in 2015, expanding by just 1.5 percent. This was down from 6.7 percent growth projected in April.
IMF also mentioned, "The conflict in northern Iraq has started to affect non-oil growth in that country."
It added, "Although most oil production is in the country's south and oil output levels have not been materially affected, the departure of skilled personnel will limit Iraq's ability to expand or, possibly, even maintain oil production."
Iraq, which pumps around 3.5 million barrels per day, is OPEC's second largest exporter after Saudi Arabia. The IMF said that a potential significant global oil supply disruption due to conflict escalation in Iraq, could lead to an oil price spike of around 20 percent.
So far, oil prices have remained unaffected by the geopolitical tensions in the Middle East due to a weak global demand and a hike in US production. Brent crude dropped from around $110 (87 Euros) a barrel to $93 a barrel.