(through domestic and international remittances) as a consequence of losing connection and communication with relatives and their larger social network.

On the other hand, among communities hosting significant IDP populations, it may be reasonable to assume greater competition for resources, within the labor market, and for goods, services and housing. These in turn may adversely affect the welfare of the hosting population.

While the IS crisis has impacted some regions more than others, the sharp decline in oil prices is expected to influence the whole economy: across economic sectors and regions. Oil is the main source of economic and fiscal resources in Iraq and it represents more than two‐fifths of total GDP.<sup>5</sup> Even though it directly accounts for only 1 percent of employment, oil revenues had enabled a significant expansion in public sector jobs between 2007 and 2012.<sup>6</sup> The reduction in oil prices directly affects oil revenues and jeopardizes the sustainability of public jobs and public transfers across the country. As oil prices remain at low levels and economic growth slows down, household welfare would be impacted through different channels –the labor market through increases in unemployment, reduction in earnings or a combination of both; and through non‐labor income components such as the decrease in public transfers such as pensions, rations received from the Public Distribution System and Social Safety Net transfers.

Given the severity of these crises, and the recurrent nature of such crises in Iraq (and increasingly in the Middle East and North Africa region), quantifying and understanding their welfare impact is critical for government and development partners. This paper employs an innovative extension of the micro‐ simulation methodology to provide an ex‐ante estimate and analysis of the complex and dynamic poverty and distributional impact of the twin crises. In doing so, it examines how the population has been affected across the (income or consumption) distribution, assesses spatially differentiated impacts, estimates the effect of the crises through macro level shocks (operating through the macro economy) and the micro level shocks (primarily large scale internal displacement), predicts the poverty impact on the existing poor and those who have fallen into poverty (including internally displaced peoples (IDPs)), and compares the characteristics of these groups.

The paper is structured as follows: first, it presents the methodological approach, which differs from traditional ones –i.e. elasticity of poverty to output or GDP – and also from micro‐simulation methods used in the past.<sup>7</sup> Section II describes the macroeconomic inputs and assumptions behind each simulated scenario. Section III discusses the welfare and distributional impacts of the twin crisis in Iraq. Section IV presents some validation exercises using the Continuous IHSES collected in 2014. Section V concludes the study, summarizing key findings and discussing a few implications of the results for the country.

> 5 Last official estimates, Crude oil represents about 44% of total GDP in 2014.

> 6 80 percent of new jobs were created in the public sector, especially in the financial, insurance and professional services sector, with accompanying increases in wages and salaries between 2007 and 2012. Further details see World Bank (2015).

> 7 The findings of this paper represent ex‐ante estimates based on available data and assumptions made after discussions and agreements with counterparts from the Government of Iraq and Kurdistan region, and as such do not constitute official estimates and may be updated when more recent and relevant data becomes available.

3