Iraq's economy is characterized by a heavy dependence on oil exports and an emphasis on development through central planning. 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 3.5 million barrels per day, and oil revenues were $21 billion in 1979 and $27 billion in 1980. At the outbreak of the war, Iraq had amassed an estimated $35 billion in foreign exchange reserves.
The Iran-Iraq War depleted Iraq's foreign exchange reserves, devastated its economy, and left the country saddled with a foreign debt of more than $40 billion. After hostilities ceased, oil exports gradually increased with the construction of new pipelines and the restoration of damaged facilities.
Iraq's invasion of Kuwait in August 1990, subsequent international sanctions, and damage from military action by an international coalition beginning in January 1991 drastically reduced economic activity. Government policies of diverting income to key supporters of the regime while sustaining a large military and internal security force further impaired finances, leaving the average Iraqi citizen facing desperate hardships. Implementation of a UN oil-for-food program in December 1996 has improved conditions for the average Iraqi citizen. Since 1999, Iraq was authorized to export unlimited quantities of oil to finance humanitarian needs including food, medicine, and infrastructure repair parts. Oil exports fluctuate as the regime alternately starts and stops exports, but, in general, oil exports have now reached three-quarters of their pre-Gulf War levels. Per capita output and living standards remain well below pre-Gulf War levels.
Despite its abundant land and water resources, Iraq is a net food importer. Under the UN oil-for-food program, Iraq imports large quantities of grains, meat, poultry, and dairy products. The government abolished its farm collectivization program in 1981, allowing a greater role for private enterprise in agriculture. The Agricultural Cooperative Bank, capitalized at nearly $1 billion 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.
Importation of foreign workers and increased entry of women into traditionally male labor roles have helped compensate for agricultural and industrial labor shortages exacerbated by the way. 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.
The United Nations imposed economic sanctions on Iraq after it invaded Kuwait in 1990. The Government of Iraq's refusal to allow weapons inspectors into the country to dismantle Iraq's weapons of mass destruction program has resulted in those sanctions remaining in place. Under the oil-for-food program, Iraq is allowed to export unlimited quantities of oil in exchange for humanitarian relief supplies, including food, medicine, and infrastructure spare parts. A robust illicit trade in oil with neighboring states and through the Persian Gulf continues to provide billions in income for the regime.
Source: the U.S. Department of State (www.state.gov)