Iraq is about to enter a financial crunch, and blame is being assigned and solutions proffered about. And this is all happening as the political class knows that there are parliamentary elections to be held by the end of next year, and that they had better not get left carrying the bag when the Iraqi voter goes out to the ballot.

This is wonderful news: It is usually the case that oil wealth empowers tyrants to co-opt the co-optable and to build repressive bodies to punish those who aren’t for sale. In Iraq’s case, when oil can no longer perform miracles, and some real accounting, both of the financial kind and the political, needs to get done, then democracy stands to be strengthened.

The alleged stability of Middle Eastern dictatorships, the antithesis of the Bush Doctrine of spreading democracy, is about to be tested. Isn’t it ironic that the DC lobbyists who told us that democracy wouldn’t work in the region, and that we must learn to embrace the tyrants, are about to be out of work themselves because oil prices are not what they used to be?

And it won’t only be the oil producing countries ringing the Persian Gulf or across the Arabian Peninsula that will feel the crunch, for other economies of the Middle East - those that produce a little oil themselves such as Egypt and Syria, or the others such as Jordan and Lebanon with no oil wealth at all - will also feel the sting as the crucial remittances from their ex-pats who thronged to Riyadh, Kuwait City and Doha begin to dwindle and dry up. There is too much riding on the fluctuations of the energy markets, and in case no one has wised up to this fact, that is probably the single most destabilizing shock wave about to hit the region for a long time to come.

In the past few years, several oil rich dynasties could offer editors-in-chief 300,000 USD salaries. Even mid-level reporting jobs came with 10,000 dollars a month, a company car, and a package of perks. Some reporters were offered to have their existing salaries doubled if they would just stop working and chose the comfort of silence. That is what oil wealth in the Middle East can do, at its most benign, and that is what it will fail to do in the near future.

If a reporter can no longer get paid off at the current rate - especially after the bar was raised so high - then these dynasties can look forward to some nasty press coming their way. But what happens when an officer doesn’t get paid off? What happens when a terrorist ideologue doesn’t get paid off? What happens when a palace crony doesn’t get paid off?

Once upon a time (a few months ago) the price of a barrel of oil hovered above 140 dollars. Today it is bouncing around the 50 dollar range, and at least one estimate sees it falling to a measly 25 dollars. If things get that bad, then that is almost 120 dollars less per barrel which the House of Saud can use to buy thrills, luxury, and loyalty.

But it is only one country that is about to be seriously affected by this mess: a nascent democracy, Iraq. It will be interesting to see how Iraq reacts to a crisis of this proportion, especially in an election year.

The alarms bells are already being sounded in Baghdad. The 2009 budget, with a final tally of 80 billion dollars, was calculated with the price of a barrel of oil being 62.50 USD. Iraqi light crude is now selling at 45 dollars a barrel. About 95 percent of Iraq’s budget derives from oil sales, which is still under the targeted benchmark of 3 million barrels a day. Parliamentarians are making the media rounds, demanding that a new budget be drawn up. The Finance Minister is sending out memos warning that unless spending is cut, massive deficits will begin piling up on Iraq, a country with an already low credit rating and with few lending options. Experts at the Central Bank are talking about the need for 18 billion dollars in spending cuts. No longer can Prime Minister Nouri al-Maliki spend 80 million dollars renovating the Wadi al-Salam Cemetery in Najaf. Sure, it’s the largest cemetery in the world, draws in plenty of revenue in religious tourism (usually of the morbid variety), and dolling out cash over it is popular with the religious establishment. But first dibs on available funds must go to the living.

This is a conversation that is happening out in the open, and it is very healthy.

Investors have the option of betting on a country like Iraq, where a conversation about the future, albeit a difficult future, is happening freely without hiding from the problem, or they can go with the status quo, hoping that the House of Saud can count on enough policemen to keep the grumblers and the gripers under control.

But it seems to me that a government that confronts its people with the harsh truth is probably more stable than a government that needs batons to keep its people from learning the truth. We will find out soon.

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