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April 7, 2020

Iraq resorts to force majeure creating concerns for contractors amid Covid-19 pandemic

The Iraqi Government has announced that the Covid-19 pandemic constitutes a force majeure for all projects and contracts. The unexpected announcement was communicated by the Crisis Committee and not through a parliament law or court decree, which has created uncertainty in Iraq’s construction sector.

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While some contracts in Iraq are governed by Iraqi law, others are governed under English law. It is expected that both types of contract could be impacted by the government announcement. The crude exporting country is struggling to finance measures to contain the pandemic amid a leadership void in the federal government, and the ongoing oil price war between Russia and Saudi Arabia is further aggravating budget shortfalls as losses accrue daily in trade, commerce, tourism and transportation. The government declared a 21-day nationwide lockdown beginning 25 March to curb the spread of the novel virus.

The traditional principle of force majeure is that a party is entitled to suspend performance of its obligations, either in whole or in part, as a result of conditions beyond its control. In Iraq, the risk of operations is amplified by sectarian or tribal tensions, which can be demonstrated through protests, roadblocks and sabotage of sites, materials and pipelines. Companies will scrutinise force majeure provisions to guarantee that their contractual obligations are suspended hand in hand with suspending their physical operations; and shield themselves from any financial penalty resulting from the delay.

Total value of all projects under execution, tracked by GlobalData, in Iraq stands at $138.5bn. Oil and gas projects constitute the highest share of the total pipeline, constituting 61% of the total value. Oil and gas projects currently in execution stage stand at $87.4bn. Those active projects in execution stage could be hampered by the government’s latest declaration.

In its view, GlobalData believes that the latest moves could have serious consequences for Iraq’s construction sector, but it is possible that by publishing extra guidance relating to the announcement the situation could be saved. Until more guidance is given, however, the decree is likely to constitute a source of concern for many companies operating within Iraq’s construction sector.

Looking at the bigger picture, Iraq relies on oil exports to fund over 90% of state revenue. The proposed 2020 budget projected revenues at $56 per barrel but political deadlock has postponed its passing, casting more uncertainty over Iraq’s economic future. So now, the collapse of oil prices and the spread of Covid-19 are likely to impact the country’s GDP, which is expected to grow by 2.7% (revised down from 3.9%) in 2020 according to the latest consensus market. Together this threatens to worsen an already dangerous political situation, and is likely to exacerbate the government’s inability to generate employment opportunities for its predominantly young population.

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Free Report
img

Internet of Things set to transform the construction industry

The Internet of Things (IoT) is proving hugely beneficial to the construction industry, allowing different assets and people to be monitored and accounted for across a traditionally fragmented industry. As a result, companies that invest in IoT now promise to make long-term gains in the industry. According to GlobalData forecasts, spending on IoT in construction will reach $9.6bn by 2025. For an industry that has large sites to manage, strict project timelines, hazardous working conditions, and tight profit margins, IoT can create a manageable view of construction sites for project managers, streamline operations, and protect workers. In addition, it allows real-time data streams of assets, automates time-consuming tasks, and ensures employee safety and productivity. IoT integration with equipment manufacturing also has rich advantages for asset monitoring sensors. This, combined with artificial intelligence (AI) can help forecast materials and workers needed during the procurement stage and assist in forecast financing. Read GlobalData’s whitepaper to find out more, including information on:
  • IoT value chain
  • Market size and growth forecasts
  • Mergers and acquisitions
  • Leading IoT adopters in construction
  • Specialist IoT vendors in construction
Don’t get left behind – find out how IoT can fortify your operations and make investments now.
by GlobalData
Enter your details here to receive your free Report.

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