Economy of Iraq

Economy of Iraq
US Navy 090328-N-0803S-012 Sailors walk along Iraq's Khawr Al Amaya Oil Platform (KAAOT). U.S. and Coalition forces guard the Khawr Al Amaya Oil Platform.jpg
CurrencyIraqi dinar (IQD)

1 Iraqi Dinar equals

0.00085 US Dollar
Trade organisations
OPEC
Statistics
GDP$192.7 billion (2017 est.)[1]
GDP growth
-0.4% (2017 est.)[1]
GDP per capita
$17,000 (2017 est.)[1]
GDP by sector
agriculture: 4.8% industry: 40.6% services: 54.6% (2017 est.)[1]
2% (2017 est.)
Population below poverty line
41.2% (2017 est.)
29.5 (2012)
Labour force
8.2 million (2014 est.)
Labour force by occupation
agriculture: 21.6%; industry: 18.7%; services: 59.8% (2008 est.)
Unemployment14.8% (2016 est.)
Main industries
petroleum, chemicals, textiles, leather, construction materials, food processing, fertilizer, metal fabrication/processing
165th (2017)[2]
External
Exports$56.74 billion (2017 est.)[1]
Export goods
crude oil 99%, crude materials excluding fuels, food and live animals
Main export partners
 China 22.8%
 India 20.4%
 South Korea 11.3%
 United States 7.8%
 Italy 6.7%
 Greece 6.1% (2015)[3]
Imports$36.47 billion (2017 est.)[1]
Import goods
food, medicine, manufactures
Main import partners
 Turkey 20.3%
 Syria 19.2%
 China 18.8%
 United States 4.7%
 Russia 4.3% (2015)[4]
FDI stock
$304,300,000 (2016)
$58.13 billion (31 December 2014 est.)[5]
Public finances
63.7% / $125 billion (2016)
Revenues$69.2 billion (2011 est.)
Expenses$82.6 billion (2011 est.)
Economic aid$700,000,000 (2017)
B- (Standard & Poor's)
Foreign reserves
$66.85 billion (31 December 2014 est.)
Main data source: CIA World Fact Book
All values, unless otherwise stated, are in US dollars.

Iraq's economy is dominated by the oil sector, which has provided about 99,7% of foreign exchange earnings in modern times.[6] In the 1980s, financial problems caused by massive expenditures in the eight-year war with Iran and damage to oil export facilities by Iran led the government to implement austerity measures, borrow heavily, and later reschedule foreign debt payments; Iraq suffered economic losses of at least $80 billion from the war.[7] After the end of hostilities, in 1988, oil exports gradually increased with the construction of new pipelines and restoration of damaged facilities.[8]

Since mid-2009, oil export earnings have returned to levels seen before Operation New Dawn and government revenues have rebounded, along with global oil prices. In 2011 Baghdad probably will increase oil exports above the current level of 1,900,000 bbl (300,000 m3) per day as a result of new contracts with international oil companies, but is likely to fall short of the 2,400,000 barrels (380,000 m3) per day it is forecasting in its budget. Iraq's recent contracts with major oil companies have the potential to greatly expand oil revenues, but Iraq will need to upgrade its oil processing, pipeline, and export infrastructure to enable these deals to reach their potential.

An improved security environment and an initial wave of foreign investment are helping to spur economic activity, particularly in the energy, construction, and retail sectors. Broader economic improvement, long-term fiscal health, and sustained increases in the standard of living still depend on the government passing major policy reforms and on continued development of Iraq's massive oil reserves. Although foreign investors viewed Iraq with increasing interest in 2010, most are still hampered by difficulties in acquiring land for projects and by other regulatory impediments.

Inflation has decreased consistently since 2006 as the security situation has improved. However, Iraqi leaders remain hard pressed to translate macroeconomic gains into improved lives for ordinary Iraqis. Unemployment remains a problem throughout the country. Reducing corruption and implementing reforms - such as bank restructuring and developing the private sector - would be important steps in this direction.

Recent history

Nominal GDP grew by 213% in the 1960s, 1325% in the 1970s, 2% in the 1980s, -47% in the 1990s, and 317% in 2000s.[9]

Real GDP per capita (measured in 1990 $) increased significantly during the 1950s, 60s and 70s, which can be explained by both higher oil production levels as well as oil prices, which famously peaked in the 1970s due to the OPEC’s oil embargo. In following two decades however, GDP per capita in Iraq dropped substantially because of multiple wars, namely the 1980-88 war with Iran, the 1990-1991 Gulf War.[10]

Iran-Iraq War

Prior to the outbreak of the war with Iran in September 1980, Iraq's economic prospects were bright. Oil production had reached a level of 560,000 m³ (3.5 million barrels) per day in 1979, and oil revenues were 21 billion dollars in 1979 and 27 billion in 1980 due to record oil prices. At the outbreak of the war, Iraq had amassed an estimated 35 billion in foreign exchange reserves.

The Iran–Iraq War and the 1980s oil glut depleted Iraq's foreign exchange reserves, devastated its economy, and left the country saddled with a foreign debt of more than $40 billion. After the initial destruction of the war, oil exports gradually increased with the construction of new pipelines and the restoration of damaged facilities.

Sanctions

Iraq's seizure of Kuwait in August 1990, subsequent international economic sanctions on Iraq, and damage from military action by an international coalition beginning in January 1991, drastically reduced economic activity. The regime exacerbated shortages by supporting large military and internal security forces and by allocating resources to key supporters of the Ba'ath Party. The implementation of the UN's Oil for Food program in December 1996 helped improve economic conditions. For the first six six-month phases of the program, Iraq was allowed to export increasing amounts of oil in exchange for food, medicine, and other humanitarian goods. In December 1999, the UN Security Council authorized Iraq to export as much oil as required to meet humanitarian needs. Per capita food imports increased substantially, while medical supplies and health care services steadily improved, though per capita economic production and living standards were still well below their prewar level.

Iraq changed its oil reserve currency from the U.S. dollar to the euro in 2000. However, 28% of Iraq's export revenues under the program were deducted to meet UN Compensation Fund and UN administrative expenses. The drop in GDP in 2001 was largely the result of the global economic slowdown and lower oil prices.

After the fall of Saddam Hussein

The removal of sanctions on 24 May 2003 and rising oil prices in the mid-to-late 2000s led to a doubling in oil production from a low of 1.3 mbpd during the turbulence of 2003 to a high of 2.6 mbpd in 2011.[11] Furthermore, reduced inflation[12] and violence[13] since 2007 have translated to real increases in living standards for Iraqis.

One of the key economic challenges was Iraq's immense foreign debt, estimated at $125 billion. Although some of this debt was derived from normal export contracts that Iraq had failed to pay for, some was a result of military and financial support during Iraq's war with Iran.[14]

The Jubilee Iraq campaign[15] argued that much of these debts were odious (illegitimate). However, as the concept of odious debt is not accepted, trying to deal with the debt on those terms would have embroiled Iraq in legal disputes for years. Iraq decided to deal with its debt more pragmatically and approached the Paris Club of official creditors.

In a December 2006 Newsweek International article, a study by Global Insight in London was reported to show "that Civil war or not, Iraq has an economy, and—mother of all surprises—it's doing remarkably well. Real estate is booming. Construction, retail and wholesale trade sectors are healthy, too, according to [the report]. The U.S. Chamber of Commerce reports 34,000 registered companies in Iraq, up from 8,000 three years ago. Sales of secondhand cars, televisions and mobile phones have all risen sharply. Estimates vary, but one from Global Insight puts GDP growth at 17 percent last year and projects 13 percent for 2006. The World Bank has it lower: at 4 percent this year. But, given all the attention paid to deteriorating security, the startling fact is that Iraq is growing at all."[16]

Between 100,000 barrels per day (16,000 m3/d) and 300,000 barrels per day (48,000 m3/d) of Iraq’s declared oil production over the past four years could have been siphoned off through corruption or smuggling, according to a US Study from May 12, 2007.[17]

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