Iraq Economy Facts

Economical overview

Iraq has the world’s fifth largest oil resources. The country also has plenty of minerals and fertile land. During the 1970s and 1980s large investments were made in education and the future looked quite bright, purely financially. Since then, the economy and infrastructure have been wasted as a result of the war against Iran 1980–1988, the Kuwait War 1990–1991, the subsequent UN sanctions, the US-led invasion of 2003, and the subsequent fighting, not least in connection with the Islamic State’s (IS) ravages.

The Iraqi state was investing early in building networks of railways and highways, not least for military reasons. Ports are located in Umm Qasr and Basra and oil terminals in al-Faw and al-Zubayr. River traffic occurs between Baghdad and Basra. But the war years have been hard at work on the infrastructure, including oil facilities, electricity and water works.

• Countryaah.com: Major imports by Iraq, covering a full list of top products imported by the country and trade value for each product category.

After the turbulent years of the jihadist IS conquest of northern Iraq, and the battles to drive away IS, for example, the million city of Mosul is in ruins. Other concrete consequences of the war situation may also extend far in the future. Long after IS’s case, for example, there have been reports of armed groups setting up illegal roadblocks to raise “customs”.

Even after the 2003 invasion, when the dictator Saddam Hussein was overthrown, the economy needed to be rebuilt from the ground up. The country was described as a command economy with a failed agricultural sector and bankrupt state governments. No significant investments had been made since 1982 and the banking system was ineffective. Iraq had a huge foreign debt, and Iran and Kuwait demanded war damages. The education system has also been damaged since then and Iraq is one of the few countries where literacy has declined since the 1980s (see Education).

• Abbreviationfinder.org: Check this abbreviation website to find three letter ISO codes for all countries in the world, including IRQ which represents the country of Iraq. Check findjobdescriptions to learn more about Iraq.

The United States hoped after 2003 that Iraq could develop a strong private sector, but the structural problems and wars have put obstacles in the way. The US and the UK primarily focused on getting oil production started and repairing power stations, water pipes and roads. Assistance was promised, and the UN released Iraq’s locked-in assets of several billion dollars. However, the violence that developed in the years following the invasion left much of the work in ruins. The sabotage against oil pipelines and other plants and the attacks on foreigners became so extensive that several companies interrupted the reconstruction work. Large amounts of aid disappeared through corruption, waste and failed projects.

Large fluctuations in oil prices

To the need for reconstruction can be added swaying oil prices. According to a 2010 International Monetary Fund (IMF) report, Iraq was the most oil-dependent of all countries in the Middle East and North Africa. The dependency has not been broken since then, despite the Iraqi government’s stated plans to try to strengthen other industries. The oil accounts for nearly two-thirds of the country’s gross domestic product (GDP) and over 90 percent of the state’s revenue. This makes the Iraqi economy extremely sensitive to price fluctuations in the world market. During most of the 1990s, oil prices rose, but when the sudden collapse of 2008 led to problems in Iraq. The price soon climbed again, but in 2014 it suddenly dropped sharply again, pushing Iraq’s economy, at the same time as the civil war (see Current policy). The country tried to compensate for falling prices by increasing its oil production and thus bringing in more money even at lower prices, although this strategy naturally contributed to a fall in prices (see Natural Resources and Energy).

By 2020, oil-producing countries have seen concerns about two different circumstances that have drastically lowered oil prices. The Corona pandemic, which disrupted industrial production in China (“the world’s workshop”), among other things, reduced global demand for oil. At the same time, the two major producers Saudi Arabia and Russia launched a price war to cut market share. Prices fell to levels not seen since the first years after the turn of the millennium. The price war does not only threaten the extraction of oil shale in the US and Canada, which takes place at higher costs than the Saudi and Russian ones. Iraq, like most oil countries, had, when the price war broke out, built its state budget at much higher oil prices than those listed in 2020.

A large part of the state’s expenditure is made up of substantial subsidies on food, oil, gasoline and electricity, but the money also goes to relatively high salaries in the over-staffed state administration and in the state-owned enterprises. Two-fifths of all Iraqis work in the public sector, although this differs from one area to another – half of Iraqis living in cities but only a quarter in rural areas.

Corruption is also a major economic problem. Iraq is one of the world’s most corruption-prone countries. One factor that is considered to contribute to corruption is a quota system, which means that responsibility for ministries and authorities is distributed among the different ethnic groups. This creates the risk of posts being manned by incompetent employees and citizens being required to bribe to “lubricate the wheels”. It can be called clientelism when politicians or civil servants offer service in exchange for political support.

Tax revenues are small and recovery is ineffective. Fuel subsidies, which meant that gasoline was extremely cheap and therefore became a smuggling product, have been cut down significantly, but increased prices and constant interruptions in electricity and freshwater systems, among other things, have instead led to popular protests.

From the beginning of the 21st century, Iraq was able to pay off large parts of its foreign debt, especially as oil prices rose in the mid-1990s. Since then, they have instead had to apply for new loans to cope with the reconstruction. International donor conferences have generated promises that are not always fulfilled.

Squeezed between Iran and the United States

The Shiite-led governments that have ruled the country after Saddam Hussein have tried to balance the power of major development interests. The economy is heavily dependent on Iran, not least the import of goods, while the United States is pushing Iraq to distance itself from the regime in Tehran. The United States has so far granted waivers to Iraq from the sanctions Donald Trump’s government reintroduced to Iran, and Washington has labored with extensions of various lengths: 120, 90, 45 or just 30 days at a time. If Iraq were no longer exempted, its government has two options: Either stop importing gas from Iran, which would lead to increased electricity outages and wave of protests, or continue imports, and then Iraq also faces US sanctions.

The reports from Iraq indicate that Washington is increasingly using economic pressure. Iraq’s central bank keeps its oil revenues at the US Federal Reserve and flies dollars in cash every month to Iraq (according to AFP News Agency between one and two billion) to make payments on behalf of the state. That requires US approval, but since Iraq’s parliament voted for foreign troops to leave the country, the United States has threatened to terminate Iraq’s account. In early 2020, Iraqis complained that the current transfer was delayed.

Increased trade with China

Iraq has had observer status in the World Trade Organization (WTO) since 2004, but does not yet meet the conditions for membership. In 2017, the process of gaining membership was resumed after nine years of dormancy.

In 2006, the EU and Iraq began to negotiate a cooperation and trade agreement, which was finally signed in May 2012. The EU was previously Iraq’s largest trading partner, but the exchange with China has been about European trade. Iraq’s exports (in the case of both China and the EU) are almost exclusively made up of oil. India, South Korea and the US are also important trading partners. Imports comprise the largest items of machinery and vehicles, fuel, medicines, chemicals and food.

Trade with Iran is important both because it has major political significance (see Foreign Policy and Defense) and because it includes important basic commodities for Iraqis, primarily food and gas for electricity generation. Pilgrimage to Shiite shrines in Iraq also comes mainly from Iran.

Pilgrims come in large crowds despite the circumstances. In 2018, an official in the Ministry of Tourism stated that almost five million people visit Iraq each year either for religious holidays or to see historical monuments. At that time, there were 750 registered companies within the travel industry.

The Kurdish region has tried to attract tourists, not least from the rest of the Middle East, but most who visit Iraqi Kurdistan come from other parts of Iraq. Traveling increased slightly when the Iraqi government proclaimed victory against the Islamic State jihadist movement in 2017, according to the Kurdistan Tourist Board chief.

As a result of the war risks, the Swedish Ministry of Foreign Affairs has previously refrained from travel, especially to Baghdad and the nearby provinces. In light of the spread of the coronavirus, the Ministry of Foreign Affairs advises against unnecessary trips to all countries.

FACTS – FINANCE

GDP per person

US $ 5,878 (2018)

Total GDP

US $ 225,914 million (2018)

GDP growth

0.6 percent (2018)

Agriculture’s share of GDP

3.0 percent (2018)

Manufacturing industry’s share of GDP

2.1 percent (2016)

The service sector’s share of GDP

41.2 percent (2018)

Inflation

-0.3 percent (2019)

Government debt’s share of GDP

49.3 percent (2018)

Currency

Iraqi Dinar

Merchandise exports

US $ 87,260 million (2018)

Imports

US $ 38,876 million (2018)

Current account

US $ 35 270 million (2018)

Commodity trade’s share of GDP

61 percent (2018)

Main export goods

crude oil, oil products

Largest trading partner

China, EU, USA, India, Iran

Sources

2007

December

Iraq takes over Basra

Britain entrusts security responsibilities in Basra to Iraqi forces, thereby setting the point for five years of British control over southern Iraq.

September

American security guards kill civilians

Criticism is being directed at the private American security company Blackwater after security guards shot dead 17 civilians in Baghdad.

August

Bloody attacks on religious minority

At least 250 die when car bombs are detonated in two villages populated by Yazidis. It is the deadliest attack since 2003.

April

Attacks kill almost 200

Nearly 200 die in blast attacks in Baghdad in a single day, despite US efforts to increase security.

January

34,000 civilian deaths in 2006

According to the UN, 34,000 Iraqi civilians were killed in 2006. The figure is three times higher than previous official estimates in Iraq.

US reinforces in Baghdad

US President George W Bush announces a new Iraq strategy, sending thousands of new soldiers to increase security in Baghdad.