Economics Essay on the economy of Iraq, By Tom Chapple ICV1C 382797 Table of content:

Page 1: Table of content Page 2: The economy of Iraq, Iraqs economy before the US lead invasion. Page 3: UN sanctions Page 4: The US lead invasion Page 5: The economy of Iraq during the United States lead occupation of Iraq. Page 6: The economy of Iraq after the US occupation, The Conclusion Page 8: Reference list

The Iraqi economy

Iraq has always been a country with a large potential, mainly thanks to its oil industry. In the past it has done very, very well when it comes to the economy. However Iraq is a country which has always been plagued by wars, though these were mainly down to Iraqs own fault. Over the past 30 or so years Iraq has been involved in three wars, the war with Iran, the invasion of Kuwait and the invasion and occupation which was lead by the United States. It is mainly down to these wars that in the past Iraqs economy has fallen into ruin and has not once again reached its full potential. This essay is all about focussing on these three wars and looking at how they have effected Iraqs economy. The main focus will however be on the invasion and occupation by the United States and the United Kingdom and will look back on how this has effected Iraqs economy over the past 10 years. To get a good view of how the economy of Iraq has changed over the past 10 years and to research how it was in the past we will need to know what the Iraqi economy is all about which is what the first part of this essay will be about. The economy of Iraq The Iraqi economy is mainly based on the selling of oil. The export of oil is so big and important in Iraq that whenever there is an increase in the price of oil or export the nominal GDP changes accordingly, however this GDP does not add to the general welfare of the Iraqi people. Compared to the high rate of capital that flows in the Iraqi oil sector the rate of labour is very low, therefore nearly all revenues go directly to the state with which they then invest and finance spending etc. In other words hardly any of the money earned from the oil sector goes straight to the people. (Wikipedia, 2013) To find out how the Iraqi economy has developed since the invasion by the US in 2003 we will need to also focus on how the economy of Iraq was before the invasion. This is what the following part of the essay will be about. Iraqs economy before the US lead invasion Economically Iraq has often done very well. Thanks to the high amounts of oil the country has they can export a lot of it, which especially nowadays with the amount of fossil fuels becoming lower and lower is a big advantage for any country with a lot of oil, and therefore obviously a big advantage for Iraq, this is well reflected in the rise of the GDP of Iraq in past times. Since oil has become more and more desirable, for example because of the rise in the amount of cars that are used, the GDP of Iraq has been increasing, in the 60s it grew by 213%, in the 70s the GDP grew by 1325%. However in the 1980s a war broke out between Iraq and Iran which lasted until 1988. The war cost Iraq a lot and also damaged many pipelines and places which were key to Iraqs oil export. During this same period 2

an Oil glut occurred which meant that the world market was overflowing with oil which lead to very low oil prices, one of the worst things that could happen to an oil-state like Iraq. Because of the war and the oil glut Iraqs economy was severely damaged. A few examples of what the war did to Iraqs economy are, the exhaustion of Iraqs foreign exchange reserves which lead to it being very hard for Iraq to trade with the rest of the world, and the massive debt which Iraq was left with, a debt of over $40 billion. Consequently during the 80s the rise of Iraqs GDP made a significant drop to what it was the decade before, with a rise of only 2% (Wikipedia, 2013). The economy of Iraq had obviously been very damaged by the war. Iraq should have made the export of oil its main focus to get the economy going again, however this did not happen. During August of 1990 Iraq invaded Kuwait as they accused Kuwait of making the world market overflow with oil and stealing oil from oil fields in Iraq. Within a short amount of time Saddam Hussein (the leader of Iraq) had set up a new government in Kuwait and made Kuwait his own. As a consequence Iraq faced strong opposition by the whole UN which consequently voted to stop Iraq, most of the allies went to war in Kuwait. As a response to the invasion oil prices saw a very large increase happen and the stock markets fell (BBC, 1990). The invasion of Kuwait also saw the UN lay economical restrictions on Iraq. This and the cost of war destroyed Iraqs economy once again. As a consequence in the 90s Iraqs GDP dropped by 47%. (Wikipedia, 2013) It was now more important than ever for Iraq to get their economy going again, however the economical sanctions laid on Iraq by the UN among other circumstances stopped Iraq from gaining as high a growth in GDP as before the wars with Iran and Kuwait. In the following part will explain the sanctions which were laid upon the Iraqi government. The UN sanctions The UN sanctions which were originally created to stop Iraqs invasion of Kuwait werent completely lifted until 2010 (BBC, 2010), therefore it is key to properly explain these to understand, not just how Iraqs economy was after the Kuwait invasion, but mainly to understand how they affected Iraqs economy during the US invasion. So what did they consist of? On the 6th of August 1990 the UN came to decisions to place trade restrictions on Iraq. These sanctions banned all UN countries from trading with Iraq, unless the trade was meant for humanitarian purposes, this lead to the oil export of Iraq being strongly limited. As a consequence of the sanctions Iraq had to shut down one of its two main pipelines. At the time it was estimated that normally Iraq would sell an average of 2.8 million barrels per day however because of the sanctions their export was lowered to selling an estimate of 1 to 1.5 million barrels per day to countries, who luckily enough for Iraq, werent part of the UN and therefore didnt have to take part in the embargo (Washington Times, 1990). The trading embargo had a massive impact on the Iraqi economy, 3

especially because of the ban on exporting oil. Iraq wasnt able to export oil to UN countries again until 1997 when the Oil for Food programme was started which stated that Iraq was now allowed to sell oil, however they were only allowed to receive goods which would improve the humanitarian situation such as food, medicines, water, etc. for the oil. This programme was already ended in 2003 after the US lead invasion of Iraq. The economy during the US lead invasion In 2003 the US began the invasion of Iraq as it was rumoured that Saddam Hussein, the tyrant leader of Iraq, had weapons of mass destruction which were of a big threat to the US and the rest of the world. The US also wanted to bring an end to the regime of Saddam Hussein which had made terrible things happen, one of such things was genocide. By December of 2011 all American troops had left Iraq which signalled the end of the US invasion. Saddam Hussein had been caught and hanged however no weapons of mass destruction were ever found. Of course a war like this results in many consequences, especially consequences for the economy of the country which has been invaded. 2013 marks the tenth year anniversary since the US lead invasion. During the March of 2003 the US invaded Iraq and on the 9th of April of the same year Saddam Hussein fell from office which left Iraq without a government. By this time the US, and the United Kingdom, had fully occupied Iraq, they now had control over the country. Shortly after the occupation the US and the UK asked the UN to end the sanctions which were laid upon Iraqs oil export as this would help to restore Iraq back to normal and get the economy going again, this wish was eventually granted. On the 22nd of May 2003 the United Nations decided to lift most of the economical sanctions. This meant that Iraq could now export oil to nearly all countries around the world again which gave the Iraqi economy a bit of a boost. The United States and the United Kingdom were now in charge of the oil export however all revenue thanks to the oil export would go straight to an Iraqi development fund which was purely meant to help rebuild the country, this would also be overseen by an international board. However, the decision to lift a lot of the sanctions lead to a lot of backlash, mainly from countries who had always been against the US lead invasion and now only voted for the plan to lift the sanctions as otherwise the people of Iraq would continue to be left in poverty and the economy of Iraq would continue to be in a downwards spiral. Many UN countries also saw this as a sign that the US lead occupation would take much, much longer than was first claimed by the US. Because of this countries were becoming suspicious. The US even had to make some concessions when it came to the resolution as they did not desire the UN to gain a role in Iraq and did not want anymore UN weapon inspectors in Iraq, however obviously these two things did happen. The fact that the US was against this did make people suspicious as it was seeming more and 4

more as if the US had invaded Iraq to get hold of the massive oil industry of Iraq. In the end the sanctions were lifted as the countries of the UN saw this as being good for the people and the economy of Iraq. Even though certain countries were suspicious the US kept on claiming that the lifting of the sanctions was purely meant for the good of the country (The Philadelphia Inquirer, 2003). Even though the sanctions were lifted the economy obviously still stayed quite bad for a long time. The following part will look at how the economy did during the US lead occupation. The economy during the United States lead occupation of Iraq During the occupation there was still an ongoing war in Iraq. The US was still trying to find weapons of mass destruction and there were still of course many people who were against the occupation. In 2005 a new Iraqi government was elected. This government was often against the occupation and the coalition forces ,which consisted of forces from several different countries who were part of the UN, who lead the occupation. The new government also used significant violence against many other groups who were opposed towards them. Next to all of this the infamous terrorist organisation, Al Qaeda, was gaining more and more influence among the people of Iraq which lead to even more violence. The Iraq war was obviously coming to a peak in violence as many people died on a daily basis, including troops from the coalition forces. (Wikipedia, 2013) The US lead occupation was also sometimes referred to as the biggest rebuilding project since the post-war rebuilding of Europe in 1945 (The Business Times Singapore, 2005) A reference to the fact that the occupancy was all about getting Iraqs economy back on track again. After the UN sanctions had been lifted and the oil export was gradually becoming a bit better the US wanted to rebuild the economy by restoring the country, to make sure it could function on its own without help from other countries, in other words to make the economy into a market economy instead of it staying a subsidised company. They mainly planned on doing this by returning things to their former condition, for example by improving the infrastructure and other important facilities and institutions. Thanks to that, at the time, the US president, George Bush, stated the following Iraqs market based reforms are gradually returning that proud country *Iraq+ to the global economy(The Business Times Singapore, 2005). By 2005 it was beginning to seem as if the Iraqi economy was starting to get going again. While such a positive view was often spoken of by the US government there were very many naysayers who claimed that the economy of Iraq was still nowhere near what it should be. Many American analysts stated that very many things were nowhere near as good as they should be to get the economy going again, for example healthcare, the employment rate and other basic needs. While the economy did often seem to be getting better it was also constantly being worsened due to the war that was still going on which lead to constant new costs. The fact that only 79% of the $18 5

billion which were part of the Iraq Relief and Reconstruction fund had actually been used for the projects they were intended for at the time reflects this. After a while insurgents also started attacking facilities which were very important for the oil industry, which also held the economy back. It can be stated that by 2005 the economy was gradually getting better however there was still a lot left to be improved, including the oil industry. (The Business Times Singapore, 2005). By the end of 2008 the situation in Iraq was still very much the same. The government was still working on the plan of turning Iraq into a market economy instead of it staying a subsidised economy by restoring key facilities in the country, however because of the still ongoing war this was still not working out as well as everyone had hoped. Iraq was also still heavily relying on the US to fund many projects and help financially. The oil industry was also just as unpredictable as before due to oil prices being unstable causing Iraq to often have to cut back on restoration (USA Today, 2008). Iraq was also harmed by the global economic crisis which was going on at the time. The crisis lead to lower oil prices which was a problem for Iraq as this reduced the Iraqi governments budget from $80 billion to $67 billion (BBC Worldwide Monitoring, 2008). By the 16th of December 2011 the US had completely withdrawn all of its troops from Iraq. Almost 9 years after the US had invaded Iraq the occupation was finally over. The following part of this essay will take a look at how the Iraqi economy has been since the end of the occupation. The economy after the US occupation The Iraqi economy is still growing at a steady rate. Investments and the production of oil are still growing and it is also visible that the Iraqi economy is doing better than before the US invasion (The Advertiser (Australia), 2011) . People have higher incomes , you see more luxury products wherever you go, businesses are doing better and so on. However all of this will probably not all be down to the economy of Iraq as lots of the previously mentioned aspects are also very much down to how much more secure Iraq now is than it used to be. Iraq is also attracting much more foreign investments than it did before which is also helping out the economy a lot (USA Today, 2012). It can also be said that Iraq has now become a market economy instead of a subsidised economy as it is now independent and doesnt have to depend on subsidies from the US. Conclusion All in all it can be stated that the Iraqi economy is nowhere near what it used to be since the big economic boom it experienced during the 70s, which is of course no surprise due to all of the setbacks it experienced, such as the UN sanctions and how bad the Saddam regime was for the economy and Iraq in general. Iraqs economy has definitely made improvements since Saddams 6

regime and the US invasion. Theyre not dependent on the US anymore, oil production is better, there is an increase in foreign investments, business are doing better, etc. Life in Iraq in general has become better which is also often thanks to the improved economy. People have higher incomes, living standards are better and things such as the health service etc. are better. However the big question is of course if things such as the UN sanctions and the US lead invasion were beneficial to Iraq in the long run or not. For example, what if sanctions hadnt been laid upon Iraq and hadnt lead to the worsening of the economy. And are the extremely high costs of war which happened because of the US invasion really evened out by the slight improvement of the economy? This we will never know, all that can be said for sure is that the Iraqi economy and life in Iraq have improved since the US invasion.

Reference list Newspaper articles: Downer, A. (2011, December 19). The last of the US troops have gone, but has the invasion left it a better place? Iraq at a turning point, The Advertiser (Australia), p. 19. Dyer, G. (2004, August 4). Iraq 10 years from now. The Guardian, p. A6 Hadar, L. (2005, December 15). All of Bushs horses, and all Bushs men. Iraqs economic progress under US occupation is not as rosy as president says it is, The Business Times Singapore, p. Unknown Leopold, E. (2003, May 23). U.N ends 13-year sanctions on Iraq: The 14-0 Security Council vote gives the US and Britain broad authority to run the country and its oil industry, The Philadelphia Inquirer, p. A1 Michaels, J. (2008, December 17). Fears of instability rise as oil prices drop; Iraq may have to slow reconstruction. USA Today, p. 8A Michaels, J. (2012, June 25). Iraq economy appears in recovery; Oil, foreign investment helping nation grow, USA Today, p. 1B Riley, K. (1990, August 7). Security council invokes sanctions, Washington times, p. A1 Online documents: BBC Monitoring Middle East. (2008) Iraqi finance minister interviewed on effects of global crisis, funds in USA. Retrieved April 3, 2013, from Lexis Nexus Websites: BBC. (1990). Iraq invades Kuwait. Retrieved on April 2, 2013, from http://news.bbc.co.uk/onthisday/hi/dates/stories/august/2/newsid_2526000/2526937.stm BBC. (2010). UN lifts sanctions against Iraq. Retrieved April 2, 2013, from http://www.bbc.co.uk/news/world-middle-east-12004115 BBC Monitoring Middle East. (2008) Iraqi finance minister interviewed on effects of global crisis, funds in USA. Retrieved April 3, 2013, from Lexis Nexis Wikipedia. (n.d.). The economy of Iraq. Retrieved 1 April, 2013, from http://en.wikipedia.org/wiki/Economy_of_Iraq 8

Wikipedia. (n.d.) The Iraqi war. Retrieved 1 April, 2013, from http://en.wikipedia.org/wiki/Iraq_War