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Fri 24 October 2014
29 Dhu al-Hijjah 1435 AH  

Introduction

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ECONOMY

"They know we own their country. We own their airspace... We dictate the way they live and talk. And that's what's great about America
right now. It's a good thing, especially when there is a lot of oil
out there we need."

Air force Brigadier General William Looney, head of
the US Central Command's Airborne Expeditionary Force

  • Overview

The modern Iraqi economy has been largely based on petroleum. Beginning in 1980 the Iraqi economy was adversely affected by four major factors: the war with Iran during the 1980s, an international oil glut in the 1980s /1990s, the economic sanctions imposed by the United Nations (UN) after the invasion of Kuwait in 1990, and the Persian Gulf War in 1991. The combined effect of all these factors was the destruction of Iraq's basic infrastructure (roads, bridges, power grids) and the country's financial bankruptcy.

Studies done at the end of the 20th century revealed that Iraq's real GDP (gross domestic product) fell by 75 percent from 1991 to 1999. In the late 1990s the country's real GDP was estimated at about what it was in the 1940s, prior to the oil boom and the modernization of the country. As a result, per capita income and the people's calorie intake plunged from the levels of relatively better-off Third World countries to those of the desperately poor Fourth World states, such as Rwanda, Haiti, the Democratic Republic of the Congo, and Somalia. Other reports indicated that since the end of the Persian Gulf War all aspects of Iraq's economy have been devastated. Its valuable assets, as well as its basic social and economic infrastructure, have been squandered, eroded, or irrevocably destroyed. Iraq's best-educated people have fled, and the value of its national currency, the dinar, has continued to decline, driving prices ever upward. (Source: encarta.msn.com)

To make matters worse, Iraq's official foreign reserves (estimated at $35 billion to $40 billion at the beginning of the 1980s) were totally drained, either spent to finance the war with Iran or misallocated on projects such as building dozens of luxury palaces for Hussein and his family. On top of this, the country was sinking in a mire of foreign debt, war reparations, and other financial obligations, which were certain to keep it in economic shambles for the following decades.

  • Government role in the economy

The most valuable industry in Iraq is the production of petroleum and natural gas for export and domestic consumption. Until the early 1970s four foreign-owned companies controlled the Iraqi petroleum industry. The two leading firms were the Iraq Petroleum Company, which held concessions in the north, and the Basra Petroleum Company, which operated in the southeast, near Al Basrah. From 1972 to 1975 all the foreign oil companies were fully nationalized by the government, and their operations were taken over by the Iraq National Oil Company and the Northern Petroleum Organization. The nationalization, together with the steep rise in the price of crude oil that the Organization of Petroleum Exporting Countries (OPEC) engineered in 1973, had the effect of raising Iraq's oil revenues more than eightfold, from $1 billion in 1972 to $8.2 billion in 1975. This sharp increase in revenue solidified the government's role in the economy, making the government the primary agent for transferring wealth from the petroleum industry to the rest of the economy. In this way the government acquired the unprecedented power to allocate economic resources to various sectors of the economy and among different social classes and groups. Beginning in the 1970s, the Iraqi government came to be the primary determiner of employment, income distribution, and development, both of economic sectors and of geographical regions. It carried out extensive economic planning and exercised heavy control over agriculture, foreign trade, communication networks, banking services, public utilities, and industrial production, leaving only small-scale industry, shops, farms, and some services to the private sector.

  • Oil and the US interests

Falling oil prices and the war with Iran severely hampered the petroleum industry during the 1980s. The industry was dealt another crippling blow in 1990, when Iraq invaded Kuwait and the United Nations responded with an embargo on Iraqi oil. Limited amounts of oil began to be exported again at the end of 1996. About 187 million barrels of petroleum and 3.2 billion cu m (113 billion cu ft) of natural gas were produced annually in the early 1990s.

To understand what is happening in Iraq, you need to be aware of one simple thing. After Saudi Arabia, Iraq has the world's largest proven oil reserves. Some 11 percent of the world's oil lies under Iraq land, and because it is so close to the surface, it is among the world's cheapest oil to extract, making it more profitable than oil from the Gulf of Mexico or the North Sea. The oil fields are located in two main regions: in the southeast, just inland from the Persian Gulf, near Ar Rumaylah, and in the north-central part of the country, near Mosul and Kirkuk. Small deposits of various other minerals are found, principally ores of iron, gold, lead, copper, silver, platinum, and zinc. Phosphates, sulfur, salt, and gypsum are fairly abundant, and seams of brown coal are numerous.

The US interest in Middle Eastern oil is consequently very high. In addition to being so profitable, US planners have long understood that Middle Eastern oil is of unparalleled geostrategic importance. As early as 1945, the US State Department noted that oil "has historically played a larger part in the external relations of the United States than any other commodity." In particular, the government recognized that control over the region's oil would give it strategic leverage over competing capitalist states, especially Japan and Germany.

The primary purpose of the US-initiated war on Iraq was not the expulsion of Saddam Hussein from Kuwait. It is obvious that the US has no objection to agressions by sovereign states against others! For example, the US didn't raise a finger in military opposition to the Indonesian invasion of East Timor; or to the various South African invasions of Namibia, Angola and Mozambique and of course the US itself has invaded many sovereign states (notably Grenada and Panama in recent years).

The war on Iraq was designed to protect US interests over oil, to educate the world about post-Soviet political realities, to test new anti-personnel and other weapons, to justify the absurdly high levels of investment in US military power, and to leave Israel as the sole regional superpower.

  • Agriculture

Iraq is predominantly an agricultural country. Approximately 13 percent of the land is under cultivation. Most farmland is in the region of the Tigris and Euphrates rivers. Agricultural production in 2000 included 384,000 metric tons of wheat, 226,000 metric tons of barley, and 130,000 metric tons of rice. Before the imposition of UN sanctions, exports of dates from Iraq accounted for a major share of world trade in dates. Other fruits produced include apples, figs, grapes, olives, oranges, pears, and pomegranates. Livestock raising is an important occupation for Iraq's nomadic and seminomadic tribes. Almost 10 percent of Iraq's land area is suitable for grazing. In 2000 the livestock population included 1.1 million cattle, 6.1 million sheep, 1,350,000 million goats, and 19 million poultry. In addition, the world-famous Arabian horse is extensively bred.

Recent Developments

Sanctions on Iraq












 


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