Economy of Iraq

Theeconomy ofIraqis dominated by the oil sector, which provided 89% of foreign exchange earnings in 2024.During itsmodern history, the oil sector has provided about 99.7% of foreign exchange earnings.Iraq's agrarian economy underwent rapid development following the14 July Revolutionin 1958 which overthrew theHashemitemonarchy. It had become the third-largest economy in theMiddle Eastby 1980. This occurred in part because of theindustrializationand infrastructure development initiatives led bySaddam Husseinin the 1970s, which includedirrigationprojects, railway and highway construction, andrural electrification.
In the 1980s, financial problems caused by massive expenditures in theIran-Iraq Warand damage to oil export facilities byIran's military led theBa'athist governmentto implementausterity measures, to borrow heavily, and to later reschedule foreign debt payments. Iraq suffered economic losses of at least $80 billion from the war.In 1988, the hostilities ended. Oil exports gradually increased with the construction of new pipelines and restoration of damaged facilities, but again underwent a sharp decline after thePersian Gulf War. GDP dropped to one-fourth of the country's 1980GDPand continued to decline under postwarinternational sanctions, until receiving aid from theU.N. Oil-for-Food Programmein 1997.Iraq experienced a modest growth by 2000, when the government attempted to make improvements and reorganizations in the economic system.
TheCoalition Provisional Authoritymade efforts to modernize the economy after the 2003U.S.-led invasion, throughprivatizationand reducing the country's foreign debt. As a result Iraq's economy expanded rapidly during this time, though growth was stunted bythe insurgency, civil war, economic mismanagement, and oil shortages caused by outdated technology.Since mid-2009, oil export earnings have returned to levels seen beforeOperation New Dawn. Government revenues rebounded, along with global oil prices. In 2011, Iraq  increased oil exports above their then-current level of 1,900,000 bbl (300,000 m) per day as a result of new contracts with international oil companies. The export was thought likely to fall short of the 2,400,000 barrels (380,000 m) per day forecasting in the budget. Iraq's  contracts with major oil companies had the potential to greatly expand oil revenues, but Iraq  needed 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  helped to spur economic activity, particularly in the energy, construction, and retail sectors. Broader economic improvement, long-term fiscal health, and sustained increases in thestandard of livingstill depended on the government passing major policy reforms and the continued development of Iraq's massive oil reserves. Although foreign investors viewed Iraq with increasing interest in 2010, most were still hampered by difficulties acquiring land for projects and other regulatory impediments.
Nominal GDP grew by 213% in the 1960s, 1325% in the 1970s, 2% in the 1980s, −47% in the 1990s, and 317% in 2000s.
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 theOPEC'soil embargo, causing the1973 oil crisis. In the 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.
Before the outbreak of the war with Iran in September 1980, the economic outlook was positive. In 1979, oil production  reached a level of 560,000 m³ (3.5 million barrels) per day, and oil revenues were 21 billion dollars in 1979 and $27 billion in 1980 due to record oil prices. Iraq had amassed an estimated $35 billion inforeign exchange reserves. It was believed to have one of the besteducationandhealth care systemsin theMiddle East, and thousands ofmigrant workersfromEgypt,Somalia, and theIndian subcontinentwere employed in construction projects.TheIran–Iraq Warand the1980s oil glutdepleted Iraq's foreign exchange reserves, devastated its economy and left the country with a foreign debt of more than $40 billion. Oil exports gradually increased as new pipelines were constructed and damaged facilities were restored.
Iraq's seizure ofKuwaitin August 1990, subsequentinternational 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 theBa'ath Party. The implementation of theUN'sOil for Food programin 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, theUN Security Councilauthorized 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 oilreserve currencyfrom theU.S. dollarto theeuroin 2000. However, 28% of Iraq's export revenues under the program were deducted to meet UN Compensation Fund and UN administrative expenses. The drop inGDPin 2001 was largely the result of theglobal economic slowdownand lower oil prices.
The removal of sanctions on 24 May 2003 andrising oil pricesin 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.Furthermore, reduced inflationand violencesince 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 $130 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.
The Jubilee Iraq campaignargued that much of these debts wereodious(illegitimate). However, as the concept ofodious debtis 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 theParis Clubof official creditors.
In a December 2006Newsweek Internationalarticle, a study byGlobal InsightinLondonwas reported to show "thatCivil waror 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]. TheU.S. Chamber of Commercereports 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 per cent last year and projects 13 per cent for 2006. The World Bank has it lower: at 4 per cent this year. But, given all the attention paid to deteriorating security, the startling fact is that Iraq is growing at all."
Since 1974, after the Iraqi Government took direct control of Iraq’s largest private oil production operations, Mosul Oil and Basra Oil, most of Iraq's manufacturing activity has been closely connected to theoil industry.The major industries in that category have been petroleum refining and the manufacture of chemicals and fertilizers. Before 2003, diversification was hindered by limitations onprivatizationand the effects of the international sanctions of the 1990s. Since 2003, security problems have blocked efforts to establish new enterprises. Theconstruction industryis an exception; in 2000cementwas the only major industrial product not based onhydrocarbons. The construction industry has profited from the need to rebuild after Iraq's several wars. In the 1990s, the industry benefited from government funding of extensive infrastructure and housing projects and elaborate palace complexes.
Agriculture contributes just 3.3% to thegross national productbut employs a fifth of the labor force.
Historically, 50 to 60 per cent of Iraq's arable land was under cultivation.Under the UNOil for Food program, Iraq imported large quantities ofgrains,meat,poultry, anddairy products. In 1981, the government abolished itscollective farmingprogram. During the Gulf War, Iraqi agriculture was disrupted physically and suffered fromeconomic sanctionsimposed by the United Nations. Imports were curtailed, petroleum exports were cut off and agricultural production with potential military application was halted. The Iraqi government responded by monopolizing grain and oilseed marketing, imposing production quotas, and instituting aPublic Distribution Systemfor basic foodstuffs. By mid-1991, the government supplied a "basket" of foodstuffs that provided about one-third of the caloric daily requirement and cost consumers about five percent of its market value.  With subsidies for agricultural inputs diminished, the government's prices failed to cover their costs. Tax on agricultural production reached 20 to 35 percent by the mid-1990s. In October 1991 the Baghdad regime withdrew personnel from the northern region controlled by two Kurdish parties.Kurdistan Regionwas described as "... amarket economyessentially left alone by a fragile governing structure, but heavily influenced by substantial international humanitarian aid flows."
In December 1996, under an "Oil for Food Program" negotiated with the United Nations, Iraq started exporting petroleum and used the proceeds to import foodstuffs. Grain imports averaged $828 million from 1997 to 2001, an increase of over 180 percent from the previous five-year period. Due to foreign competition, Iraqi production declined (29 percent for wheat, 31 percent for barley, and 52 percent for maize). Because the government had neglected the production of forage crops, fruits, vegetables, and livestock other than poultry, those sectors were less buffeted by international affairs. Nevertheless, they were affected by severe drought, an outbreak ofscrewworm, and anepizooticoffoot-and-mouth diseaseAs the Oil for Food Program expanded to cover more agricultural inputs and machinery, the productivity of Iraqi agriculture stabilized around 2002.
After the U.S. invasion in March 2003, many Iraqis became dependent on government-subsidized food. The US-funded agricultural reconstruction program thus focused on increased productivity under the aegis of Agricultural Reconstruction and Development Iraq (ARDI).Another program was run by Development Alternatives, Inc. (DAI) ofBethesda, Maryland. The restoration of Iraq's irrigation systems was largely funded byBechtel International.
ARDI conducted trials to improve farming practices and crop varieties of winter cereals (wheat and barley), summer cereals (rice, maize, and sorghum), potatoes, and tomatoes. Feed supplements and veterinary treatments were introduced to increase ovulation, conception, and birth weights of livestock.  Surveys were conducted of poultry growers and apple farmers. Nurseries were established for date palms and grapes. ARDI had projects promoting trade associations and producers' co-ops and supported extension as an appropriate governmental function. The contract eventually cost over $100 million and lasted through December 2006. Under its Community Action Program, USAID also funded an analysis of markets for sheep and wool. It awarded a contract to theUniversity of Hawaiito revitalizehigher education in agriculture. It awarded a contract for $120 million to theLouis Berger Groupto promote Iraq's private sector, including agriculture.
Starting in 2006,Provincial Reconstruction Teamswere sent in to promote goodwill and sap the insurgency. "PRTs" allowed military commanders to identify local needs and, with few bureaucratic hurdles, to dispense up to $500,000. Civilians from many agencies within theU.S. Department of Agriculture, as well asUSAID, served tours on PRTs. Some participants criticized the absence of a national agricultural strategy, or clear direction on the design of projects. Others complained that projects emphasized "American-style, 21st-centuryagricultural technologiesand methodologies..." that were inappropriate for Iraq.
Agricultural production did not rebound from the reconstruction program. According to theFood and Agriculture Organization(FAO), between 2002 and 2013, the production of wheat increased 11 percent and milled rice 8 percent, but barley had decreased 13 percent and maize 40 percent. Scaled in "international dollars" (2004-2006 base equaling 100) Iraq's per capita food production was 135 in 2002, 96 in 2007, and 94 in 2012. The agricultural sector shed workers. In those same years, production per worker was 117, 106, and 130, respectively.
The internationalOil-for-Food program(1997–2003) further reduced farm production by supplying artificially priced foreign foodstuffs. Because of favorable weather conditions, grain production was 22 percent higher than in 2002. Although growth continued in 2004, experts predicted that Iraq would be an importer of agricultural products for the foreseeable future. Long-term plans call for investment in agricultural machinery and materials and more prolific crop varieties—improvements that did not reach Iraq's farmers under the Hussein regime. In 2004, the main crops were wheat, barley, corn, rice, vegetables, dates, and cotton, and the main livestock outputs were cattle and sheep.
TheAgricultural Cooperative Bank, capitalized at nearly 1 G$ - by 1984, targets its low-interest, low-collateral loans to private farmers for mechanization, poultry projects, and orchard development. Large modern cattle,dairy, and poultry farms are under construction. Obstacles to agricultural development include labor shortages, inadequate management and maintenance, salinization,urban migration, and dislocations resulting from previous land reform and collectivization programs.
In 2011, an agricultural adviser to the Iraqi government,Layth Mahdi, summarized the forced United States agricultural reconstruction:
Importation of foreign workers and increased entry of women into traditionally male labour roles have helped compensate for agricultural and industrial labour shortages exacerbated by the war. A disastrous attempt to drain the southern marshes and introduce irrigated farming to this region merely destroyed a natural food producing area, while concentration of salts and minerals in the soil due to the draining left the land unsuitable for agriculture.
In the Mada'in Qada region east ofBaghdad, hundreds of small farmers united to form theGreen Mada'in Association for Agricultural Development, an agricultural cooperative that provides its members withdrip irrigationandgreenhousesas well as access to credit.
In recent years, farmers have been confronted with reduced rainfall and high temperatures. Particularly affected are small scale farmers who, unable to withstand lower water levels, are forced to leave their lands in search of different ways to fulfill their livelihoods.
Throughout the twentieth century, human exploration, shifting agriculture,forest fires, and uncontrolled grazing denuded large areas of Iraq's natural forests, which in 2005 were almost exclusively confined to the northeastern highlands. Most of the trees found in that region are not suitable for lumbering. In 2002, a total of 112,000 cubic meters of wood were harvested, nearly half of which was used as fuel.
Despite itsnotable large rivers, Iraq's fishing industry has remained relatively small and based largely on marine species in the Persian Gulf. In 2001, the approximate yield was 8,000 tons (compared to 18,000/t during the period between 1981-1997) according to official government estimates.
Aside from hydrocarbons, Iraq's mining industry has been confined to extraction of relatively small amounts ofphosphates(atAkashat), salt, and sulfur (nearMosul). Since a productive period in the 1970s, the mining industry has been hampered by theIran–Iraq War(1980–88), the sanctions of the 1990s, and the economic collapse of 2003.
Iraq is one of the most oil-rich countries in the world. The country holding the fifth largest proven crude oil reserves,totaling 147.22 billion barrels at the end of 2017.Most of this oil—4 million barrels per day out of 4.3 million barrels produced daily—is exported, making Iraq the third-largest exporter of oil.Despite its ongoing civil war, Iraq was able to increase oil production during 2015 and 2016, with production dipping by 3.5 per cent in 2017 due to conflict with theKurdistan Regional Governmentand OPEC production limits.By world standards, production costs for Iraqi oil are relatively low.However, four wars—the 1980–1988Iraq-Iran War, 1991Gulf War, the 2003–2011War in Iraq, and thecivil war—and the 1991–2003 UN sanctions have left the industry's infrastructure in poor condition, and the de facto independence of oil-richKurdistan Regionhave limited production.
In the 1970s, Iraq produced over 3.5 million barrels of oil per day. Production began to fall during the Iran-Iraq War, before plummeting 85 per cent after the 1991 invasion of Kuwait. UN sanctions prevented the export of oil until 1996, and then allowed exports only in exchange for humanitarian aid in theOil-for-Food Programme.The 2003 lifting of sanctions enabled production—and exports—to restart.Production has since recovered to pre-Gulf War levels, and most of Iraq's oil infrastructure has been repaired, despite persistent sabotage by theIslamic State(ISIL) and others.In 2004, Iraq had eight oil refineries, the largest of which were atBaiji,Basra, and Daura.
Despite its oil wealth, sabotage and technical problems at refineries have forced Iraq to import petroleum, other refined oil products, and electricity from the neighbouring countries, especially Iran.In 2004, for example, Iraq spent $60 million per month for imported gasoline. Sabotage
In late 2004 and early 2005, regular sabotage of plants and pipelines reduced export and domestic distribution of oil, particularly to Baghdad. Nationwide fuel shortages and power outages resulted.Persistent ISIL sabotage of pipelines, power plants and power lines, and theft of oil and electricity have also contributed to theJuly 2018 protestsin southern Iraq.
In 2004, plans called for increased domestic utilization of natural gas to replace oil and for use in thepetrochemical industry. However, because most of Iraq's gas output is associated with oil, output growth depends on developments in the oil industry.
Half of Iraq's power plants were destroyed in thePersian Gulf War of 1991, and full recovery never occurred.In mid-2004, Iraq had an estimated 5,000 megawatts of power-generating capacity, compared with 7,500 megawatts of demand.At that time, the transmission system included 17,700 kilometers of line. In 2004, plans called for construction of two new power plants and restoration of existing plants and transmission lines to ease the blackouts and economic hardship caused by this shortfall, but sabotage and looting kept capacity below 6,000 megawatts. The ongoing civil war, sabotage of transmission lines, andgovernment corruptioncaused the electricity shortage to worsen: by 2010 demand outstripped supply by 6000 megawatts.
Oil continues to dominate Iraq's economy. As of 2018, oil is responsible for over 65 per cent of GDP and 90 per cent of total government revenue.Petroleumconstitutes 94% of Iraq's exports with a value of $59.73 billion in 2017.The central government hopes to diversify the economy away from oil, and has had some success: non-oil GDP growth, which was below the regional average from 2014 to 2016, pushed above the average in 2017.Despite this, the percentage of government spending going to non-oil investment has continued to decline since 2013 and nowstands at only 34 per cent.
Between June 2009 and February 2010 theMinistry of Oiltendered for the award of Service Contracts to develop Iraq's existing oil fields. The results of the tender, which were broadcast live on Iraqi television, are as follows for all major fields awarded but excluding theKurdistan Regionwhere Production Sharing Contracts have been awarded that are currently being disputed by the Baghdad government. All contracts are awaiting final ratification of the awards by the Iraqi government. Company shares are subject to change as a result of commercial negotiations between parties.
Notes:
In summary the shares by region in the increased production are:
Iraq's financial services have been the subject of post-Saddam reforms. The 17 private banks established during the 1990s were limited to domestic transactions and attracted few private depositors. Those banks and two main state banks were badly damaged by the international embargo of the 1990s. To further privatize and expand the system, in 2003 theCoalition Provisional Authorityremoved restrictions on international bank transactions and freed theCentral Bank of Iraq(CBI) from government control. In its first year of independent operation, the CBI received credit for limiting Iraq's inflation.In 2004, three foreign banks (HSBC,Standard Chartered,National Bank of Kuwait) were the first to receive licenses to do business in Iraq.
Because of the danger posed by Iraq's ongoing insurgency, thesecurityindustry has been a uniquely prosperous part of the services sector. Often run by former US military personnel, in 2005 at least 26 companies offered personal and institutional protection, surveillance, and other forms of security.
In the early post-Hussein period, afreewheelingretail trade in all types of commodities straddled the line between legitimate and illegitimate commerce, taking advantage of the lack of income tax and import controls.
TheIraq tourism industry, which in peaceful times has profited from Iraq's many places of cultural interest (earning US$14 million in 2001), has been dormant since 2003. Despite conditions, in 2005 the Iraqi Tourism Board maintained a staff of 2,500 and 14 regional offices.Between 2009 and 2010, 165 tourists from 16 countries entered Iraq to visit historic sites; as of January 2011, a U.S. State Department grant provided $2 million to help preserveBabylon, supporting the re-opening of one of the site's two museums.
From 2003 to 2008, mobile phone subscriptions had expanded over hundred-fold to ten million nationwide, according to theBrookings Institution.
In 2002, Iraq's labour force was estimated at 6.8 million people.
In 1996, some 66.4 per cent of the labour force worked in services, 17.5 per cent in industry, and 16.1 per cent in agriculture. 2004 estimates of Iraq's unemployment ranged from 30 per cent to 60 per cent.
The CPA has referred to a 25% unemployment rate, theIraqi Ministry of Planningmentioned a 30% unemployment rate, whereas the Iraqi Ministry of Social Affairs claims it to be 48%.Other sources are claiming a 20% unemployment rate and a probably 60% under-employment rate.The actual figure is problematic because of high participation in black-market activities and poor security conditions in many populous areas. In central Iraq, security concerns discouraged the hiring of new workers and the resumption of regular work schedules. At the same time, the return of Iraqis from other countries increased the number of job seekers. In late 2004, most legitimate jobs were in the government, the army, the oil industry, and security-related enterprises.Under Saddam Hussein's reign, many of the highest-paid workers were employed by the greatly overstaffed government, whose overthrow disrupted the input of these people to the economy. In 2004, the U.S.Agency for International Developmentcommitted US$1 billion for a worker-training program. In early 2004, the minimum wage was US$72 per month.
Iraq is a founding member ofOPEC.Petroleumconstitutes 99,7% of Iraq's exports with a value of $43,8 billion in 2016.
From the 1990s until 2003, the internationaltrade embargorestricted Iraq's export activity almost exclusively to oil. In 2003, oil accounted for about US$7.4 billion of Iraq's total US$7.6 billion of export value, and statistics for earlier years showed similar proportions. After the end of the trade embargo in 2003 expanded the range of exports, oil continued to occupy the dominant position: in 2004 Iraq's export income doubled (to US$16.5 billion), but oil accounted for all but US$340 million (2 per cent) of the total. In late 2004, sabotage significantly reduced oil output, and experts forecast that output, hence exports, would be below capacity in 2005 as well. In 2004, the chief export markets were the United States (which accounted for nearly half), Italy, France, Jordan, Canada, and the Netherlands. In 2004, the value of Iraq's imports was US$21.7 billion, incurring a trade deficit of about US$5.2 billion. In 2003, the main sources of Iraq's imports were Turkey, Jordan, Vietnam, the United States, Germany, and Britain. Because of Iraq's inactive manufacturing sector, the range of imports was quite large, including food, fuels, medicines, and manufactured goods. By 2010, exports rose to US$50.8 billion and imports rose to US$45.2 billion. Chief 2009 export partners were: U.S., India, Italy, South Korea, Taiwan, China, Netherlands, and Japan. Chief 2009 import partners were: Turkey, Syria, U.S., China, Jordan, Italy, and Germany.
In March 2022, Iran-Iraq trade reached a volume of 10 billion USD, as joint ventures increased significantly but were still limited due to sanctions against Iran. Especially goods originating from Iran were subject to a trade embargo imposed by the United States and the European Union. Iran and Iraq signed a memorandum of understanding (MOU) on economic cooperation in January 2021.