Economy, Income, And Trade of Iraq
In 1973, Iraqi oil revenue was $1.8 billion. By 1978, oil revenues peaked at $23.6 billion. In 2002, oil revenues were estimated at about $15 billion. Oil production growth was forecast to be constrained by security problems and long-standing underinvestment over the period 2006–07, but modest increases in output were expected to improve real GDP growth.
GDP growth was in double digits from 1973 to 1980 with the exception of 1974, when it was 7.2%. It was from these lofty heights that the regime of Saddam Hussein launched two wars whose effects on the Iraqi economy, even aside from the tragic human costs, proved devastating. The Iraq-Iran War (1980–88) began with Iraq's attempt to seize control of the economically and strategically important Shatt al Arab from Iran, which the countries had agreed to divide in a treaty in 1975. Saddam miscalculated that Iran could be easily dismembered during its revolutionary upheavals, and when the war ended eight bloody years later, the Shatt al Arab and all other border issues returned to the status quo antebellum, leaving Iraq with no material gain and a debt of over $100 billion, much of it owed to Kuwait. Annual oil revenues for Iraq and Kuwait were roughly even—averaging about $16 billion a year—but Kuwait, instead of spending on armaments, had invested sizeable amounts in the West, essentially doubling its returns. Kuwait refused to see the debts owed it by Iraq as money spent for its own defense, and insisted on being repaid, providing the economic trigger for Iraq's second disastrous foray—the invasion of Kuwait on 2 August 1990. For the first time the UN Security Council agreed to support collective action against an aggressive power and Iraqi forces were driven out of Kuwait in the first Gulf War in February 1991. The UN imposed comprehensive economic, financial, and military sanctions, placing the Iraqi economy under siege. Acting on its own, the United States also froze all Iraqi assets in the United States and barred all economic transactions between US citizens and Iraq. Many other countries imposed similar sanctions on top of the UN-imposed embargo. UN Security Council resolutions authorized the export of Iraqi crude oil worth up to $1.6 billion over a limited time to finance humanitarian imports for the Iraqi people.
The effect of war in Kuwait and continuing economic sanctions reduced real GDP by at least 75% in 1991, on the basis of an 85% decline in oil production, and the destruction of the industrial and service sectors of the economy. Living standards deteriorated and the inflation rate reached 8,000% in 1992. Estimates for 1993 indicated that unemployment hovered around 50% and that inflation was as high as 1,000%. Because UN costs and reparations for Kuwait were taken out of permitted oil sales before being handed over to the Iraqi regime, the government's revenues were lower than total oil sales. The Organization of Arab Petroleum Exporting Countries (OAPEC) reported that Iraqi oil revenues at current prices were $365 million in 1994, $370 million in 1995 and $680 million in 1996. After the first Gulf War Iraq refused to provide economic data to the UN or any other international organization, and all estimates therefore were subject to wide variability and questions of reliability. Uncertainty was increased by a flourishing black market that was responsible for an increasing share of domestic commerce. There were widespread expectations that the Hussein regime would soon fall from the weight of its disastrous political and economic miscalculations, but this did not happen, and by 1995 it had become apparent that the tight restrictions on oil sales were resulting in serious harm to the Iraqi people. The UN passed its first oil-for-food program (which the Iraqi regime refused to accept until 1996) allowing oil worth $5.26 billion to be sold every six months, with strict controls over how the money was spent. OAPEC reported that Iraqi oil revenues were about $4.6 billion in 1997 and $6.8 billion in 1998. In December 1999 the UN Security Council lifted the limits on Iraq's oil production, which then rose from 550,000 billion barrels per day (bbl/d) in November 1996 to an average of about 2.6 million bbl/d during 2000. Real GDP growth fell by 5.7% in 2001 due to the slowdown in the world economy and lower oil prices.
By 2002, crude exports from Iraq had fallen below normal capacity (about 2 million bbl/d) to an average of 630,000 bbl/d. According to UN assessments, this low export level created a $2.64 billion shortfall in the oil-for-food program. Low exports were blamed on illegal surcharges of about 15–45 cents per barrel being levied by Iraq from about December 2000, and the tactic of "retroactive pricing" adopted by the United States and the United Kingdom in January 2001 to combat these surcharges. Both the surcharges and the retroactive pricing—whereby the price charged for Iraqi oil was revealed only after the sale, and then set at a level too high for a surcharge to be paid and still make a profit—raised the price and reduced demand for Iraqi oil. The concerns by the United States and the United Kingdom were that the surcharges were being used to fund a secret military build-up by Iraq. UN estimates are that from 1996 to 2002 the "oil-for-food" program generated about $60 billion. The US government estimates that through smuggling and illegal surcharges the Iraqi government secured about $6.6 billion from 1997 to 2001. On 14 May 2002, after Iraq had resumed oil exports, the UN Security Council approved a change in the oil-for-food program to add an extensive list of "dual-use" goods (goods that could be used for military as well as nonmilitary purposes) that Iraq could not purchase with its oil revenues.
On 16 October 2002, US president George W. Bush signed a resolution passed by the US Congress authorizing the use of force in Iraq. On 8 November 2002 the UN Security Council unanimously adopted Resolution 1441 demanding UN arms inspectors be given unconditional access to search anywhere in Iraq for banned weapons, and requiring a "accurate, full and complete" accounting of all of its weapons of mass destruction within 30 days. After failure to secure a second resolution from the UN Security Council in February 2003 explicitly supporting a military invasion of Iraq—all members of the Council were opposed except the United Kingdom—the United States and United Kingdom held to their intention to act without the UN. The US-led attack on Iraq was launched on 19 March 2003. Baghdād fell on 9 April 2003, and President Bush announced the end of major combat operations on 1 May 2003.
Sanctions against Iraq were lifted in May 2003, allowing reconstruction efforts to begin, but serious security problems arising from an Iraqi insurgency hampered the rebuilding effort. In 2003, real GDP growth stood at–21.8%, and the inflation rate was 29.3%. The "oil-for-food" program was phased out that May. A transitional government was elected in January 2005, and constitution-writing began. A referendum on the constitution was held in October 2005, with the constitution being approved overwhelmingly. Elections for a permanent government were held in December 2005. Iraq's unemployment rate in 2005–06 remained high (27–40%), but the overall Iraqi economy appeared to be improving somewhat. The continued sabotage of oil installations put a drag on the economy, however, but real GDP was forecast to grow at a rate of around 6% in 2006. In October 2003, a new Iraqi currency, the "new Iraqi dinar" was introduced, and by 2006 it had appreciated sharply. As of that date, Iraq had requested formal membership in the WTO. In November 2005, the World Bank approved a $100 million loan (for education purposes) to Iraq. Iraq assumed a heavy debt burden during the Saddam Hussein years of some $100–$250 billion, if debts to Gulf states, Russia, and reparations payment claims stemming from the 1990 invasion of Kuwait are included. Iraq's oil export earnings were immune from legal proceedings, including debt collection, until the end of 2007. In 2004, the Paris Club of 19 creditor nations agreed to forgive up to 80% on $42 billion worth of loans, but the relief was contingent upon Iraq reaching an economic stabilization program with the IMF.
The country's oil exports in 2005 were below 2004 levels. Oil production by 2006 had not returned to its prewar levels: it remained below 2 million barrels per day compared with a level of some 2.5 million barrels per day before the 2003 invasion. Persistent fuel shortages forced the government to raise the heavily subsidized price of gasoline in 2005. This sparked protests and rioting throughout Iraq. Oil exports for 2005 were 1.39 million barrels per day, down from 1.5 million barrels per day in 2004. The poor oil production figures were largely due to attacks on pumping and distribution facilities; death threats were also made to tanker drivers, which led to the closing of a refinery in northern Iraq. More than 75% of the country's GDP comes from oil. The high price of oil (more than $63 per barrel in the first week of January 2006) mitigated the economic damage from lower production, and oil prices were forecast to remain high over the long term.
The US Central Intelligence Agency (CIA) reported that in 2005 Iraq's gross domestic product (GDP) was estimated at $94.1 billion. The per capita GDP was estimated at $3,400. The annual growth rate of GDP was estimated at 2.4%. The average inflation rate in 2005 was 40%. The CIA defines GDP as the value of all final goods and services produced within a nation in a given year and computed on the basis of purchasing power parity (PPP) rather than value as measured on the basis of the rate of exchange. In 2004, it was estimated that agriculture accounted for 7.3% of GDP, industry 66.6%, and services 26.1%. More than $33 billion in foreign aid was pledged for 2004–07.
Modern shops and department stores have spread throughout the country, replacing traditional bazaars. Baghdād, Al Mawşil, and Al Başrah, as well as other large and medium-size cities, all have modern supermarkets. Baghdād leads in wholesale trade and in the number of retail shops.
The previously state-owned economy has been suffering since the 1980–88 Iran-Iraq War. The 1990 Kuwait invasion and the subsequent international military intervention caused even greater damage to the infrastructure and resulted in international sanctions that crippled the economy. With the 2003 ousting of Saddam Hussein by international coalition forces, the way was paved to reopen the Iraqi economy to international trade. However, the nation was expected to be highly dependent on foreign aid and investment for the foreseeable future.
Iraq's most valuable export is oil, which has historically accounted for almost all of its total export value. Rising oil prices during the 1970s created increases in export revenues. However, the drop in world oil prices and Iraq's exporting problems due to international sanctions essentially put an end to Iraqi oil exports. The United Nations (UN) imposed trade restrictions on non-oil exports in August 1990. Non-oil exports (often illegal) were estimated at $2 billion for the 12 months following the March 1991 cease-fire. Iraq was traditionally the world's largest exporter of dates, with its better varieties going to Western Europe, Australia, and North America.
Until 1994, the UN committee charged with supervising what little international trade Iraq was permitted to engage in—food and medicine, essentially—kept records on the amount of goods it approved for import in exchange for oil. In the first half of 1994, the committee recorded $2 billion in food imports, $175 million in medicine, and an additional $2 billion in "essential civilian needs," a term that at that time referred to agricultural machinery, seeds, and goods for sanitation.
In 1995, the Iraqi government rationed its people only one-half of the minimum daily requirement in calories. In 1997, the UN permitted Iraq to expand its oil sales to increase its purchasing power of food and other sources of humanitarian relief. In the spring of that year the country received 400,000 tons of wheat to help feed its suffering population, who had been living under strict food rations for four years. Limited exports were organized by the UN, and the oil-for-food program brought in revenues during 1999 equaling $5.3 billion.
In 2005, Iraq's exports were crude petroleum (83.9%), crude materials excluding fuels (8%), and food and live animals (5%). Imports were food, medicines, and manufactures. Iraq's export partners in 2005 were: the United States (51.9%), Spain (7.3%), Japan (6.6%), Italy (5.7%), and Canada (5.2%). Iraq's import partners were: Syria (22.9%), Turkey (19.5%), the United States (9.2%), Jordan (6.7%), and Germany (4.9%).