Iraq News Now

Shafaq News/ While the idea of Iraq completely halting oilexports seems implausible, concerns over economic sustainability persist. Thecountry’s heavy reliance on this sector, coupled with a rapidly growingpopulation and a lack of alternative income sources, raises alarms about itsfinancial future. Experts warn that such overdependence could spell disaster ifprices plunge, underscoring the urgency of diversifying the economy beforeexternal shocks undermine national stability.

Fragile Fortune

Iraq’s economy is heavily dependent on oil, with over 90% ofgovernment revenues coming from crude exports. As the second-largest oilproducer in OPEC+, Iraq produces around 4.4 million barrels per day (bpd),though exports fluctuate between 3.3 and 3.7 million bpd due to productionagreements, infrastructure limitations, and geopolitical factors. While oil hasgenerated substantial revenues—such as the record $115 billion in 2022—it alsoexposes the country to financial instability, as seen during the 2020 oil pricecrash, when revenues collapsed and the government was forced to take emergencymeasures to ensure public sector salaries were paid.

Kovend Sherwani, an energy expert, highlights Iraq’svulnerability, “Iraq’s rentier economy depends almost entirely on oil, whichleaves it highly susceptible to price shocks. With production around fourmillion barrels per day, any major price drop could cripple the state’sfinances.”

Global oil prices are notoriously volatile, influenced byfluctuating demand, geopolitical crises, and OPEC+ decisions. A sharp declinebelow $50 per barrel could send Iraq into a severe budget crisis, as thecountry needs oil prices between $70 and $80 per barrel to balance its budget.A disruption in oil prices threatens not only government finances but alsoessential public services and infrastructure projects.

Economist Mustafa Faraj warns, “If Iraq were to lose its oilrevenue, the country would face a severe economic crisis. Such a scenario wouldbe catastrophic, as the government would struggle to pay salaries, fund publicservices, or sustain infrastructure projects.”

This fragility is compounded by Iraq’s state-dominatedeconomy, with more than 60% of the workforce employed by the government. A dropin oil revenues would leave a large portion of the population without income,intensifying social unrest.

Iraq’s budget structure further exacerbates thisvulnerability. With expansionary fiscal policies that increase public spendingwhen oil prices are high, the government often bases its budget on optimisticoil revenue projections. For instance, the 2023 budget of $152 billion reliedon projected revenues that could quickly become unsustainable if prices fall.

Public sector salaries and pensions alone account for over$50 billion annually, so any disruption in oil revenue could lead to immediatefinancial turmoil.

The country’s overreliance on oil has also stifled thegrowth of its private sector, which contributes less than 8% of GDP.

Businesses struggle due to poor infrastructure, bureaucraticinefficiencies, and competition from imports. Economist Ahmed Abdul-Rahmanpoints out, “Oil revenues are already struggling to meet the demands of arapidly growing population. The government must act now to create alternativerevenue streams.”

With Iraq’s population set to reach 50 million by 2030, thepressure on oil and electricity demands will only increase.

Energy demand further deepens Iraq’s vulnerabilities.Despite having some of the largest natural gas reserves globally, the countryfaces a daily power deficit of up to 10 gigawatts, leading to frequentblackouts, especially in urban centers like Baghdad. Residents often rely oncostly private generators to meet their energy needs. This energy deficithighlights the fragility of Iraq’s economic stability, as the governmentdepends on oil revenues to fund electricity production.

Sherwani emphasizes the urgency, “With the populationgrowing so rapidly, the need for consistent electricity becomes more critical.Any disruption in oil revenues, which fund electricity projects, could severelyhinder efforts to meet growing demand, leaving millions without reliablepower.”

The situation worsens during the summer months, whentemperatures often exceed 40°C (104°F), making air conditioning and othercooling systems essential for public health. Without steady oil revenue, thegovernment may struggle to invest in necessary infrastructure upgrades,worsening the energy crisis and triggering deeper social unrest.

Financial Freefall

The loss of oil revenue threatens not only Iraq’s economicstability but also its social fabric and long-term development. Oil earningsform the backbone of Iraq’s budget, supporting public services, infrastructure,and social programs. In 2024, Iraq’s oil exports generated approximately $72billion, yet government expenditures consistently surpass this income.

In 2023, oil revenue accounted for 93% of the federalbudget, making any disruption potentially catastrophic for funding health,education, and security. A severe shortfall could cripple governmentoperations, particularly the payment of public sector salaries. With around 3million employees on the state payroll, any delays or cuts could sparkwidespread discontent, as witnessed in the 2016 protests over unpaid wages.

Beyond its economic consequences, the loss of oil revenuewould deepen social inequalities. Despite its vast oil wealth, Iraq has apoverty rate of around 20%, with many regions heavily dependent on governmentsubsidies. The private sector remains underdeveloped, and informal employmentmakes up over 60% of the workforce, leaving millions of Iraqis without stablejob opportunities. The lack of oil revenue would further strain the economy,pushing more young Iraqis into an already burdened public sector andintensifying financial pressures. Political instability would likely follow, astensions between Baghdad and the Kurdistan Regional Government overrevenue-sharing agreements could escalate into deeper disputes.

Inflation would be another inevitable consequence. Manyoil-exporting nations peg their currencies to the US dollar, and without steadyoil revenue, Iraq might be forced to print more money, leading to a rapiddepreciation of the dinar.

Similar economic instability unfolded in Venezuela, where anoil revenue collapse caused the bolivar to lose over 99% of its value between2013 and 2020. A comparable situation in Iraq would send the cost of livingsoaring, disproportionately harming low-income families and fuelling socialunrest.

Iraq’s heavy reliance on oil is an unsustainable economicmodel. Recognizing this, the government launched the 2023 National DevelopmentPlan (NDP) to diversify the economy by boosting agriculture, manufacturing, andtourism. However, without oil revenue, these initiatives would likely stall.Any further decline in state investment would make recovery even moredifficult.

Evolve or Expire

To secure a sustainable economic future, Iraq must urgentlyshift away from its heavy reliance on oil and focus on developing its non-oilsectors. Strengthening key sectors like agriculture, industry, tourism, andtransportation can help create jobs, stabilize the economy, and reduce imports.

Despite Iraq’s vast agricultural potential—12 millionhectares of arable land and two major rivers—the country imports nearly $8billion worth of agricultural products annually. Decades of war, mismanagement,and water shortages have weakened domestic production. However, with the rightinvestment in modern farming techniques, irrigation, and seed technology, Iraqcan reduce imports and revitalize its agricultural sector.

Wheat production, for example, often falls short of demanddue to inconsistent policies and climate issues. In 2022, Iraq produced only3.4 million tons, far less than the 6 million tons needed to meet domesticconsumption. Advanced irrigation systems and drought-resistant crops could helpbridge this gap and ensure food security. "Iraq needs a long-termagricultural strategy. Without serious investment, food imports will continuedraining our economy," notes agricultural economist Salim Jawad.

Iraq's date production has also suffered, declining from900,000 tons in the 1980s to just 600,000 tons today, causing the country tolose its status as the world's leading data exporter. This decline stems fromoutdated farming methods, industry neglect, and climate challenges.

A well-structured plan to restore the date palm industry,including research, subsidies, and global marketing strategies, could reviveIraq’s presence in the global market. "Iraq’s dates were once famousworldwide," says trader Ahmed al-Bayati. "With better infrastructureand marketing, we could reclaim our position in the global market."

The industrial sector remains underdeveloped, with manystate-owned factories shut down due to decades of conflict and economicmismanagement. As a result, Iraq relies heavily on imports. Rehabilitating itsindustrial base could create jobs, reduce dependency on foreign goods, andstrengthen self-sufficiency. Iraq’s annual cement production is 25 milliontons, but demand is expected to exceed 30 million. Expanding modern cementplants could transform Iraq into a regional supplier. "Investing indomestic production will reduce reliance on imports and strengthen Iraq’seconomic sovereignty," explains industrial expert Firas Mahmoud.

The long-delayed Basra Petrochemical Complex holdssignificant potential. If fully operational, it could generate billions inrevenue and create thousands of jobs. "Iraq has the raw materials for athriving petrochemical industry, yet we continue to export crude oil instead ofrefining it into high-value products," notes energy analyst Haidar Karim.Developing this sector would allow Iraq to retain more of its oil wealth,boosting the economy and generating high-paying jobs. With the globalpetrochemical market projected to grow at a compound annual growth rate (CAGR)of 5.4%, Iraq has an opportunity to carve out a strong position in thisindustry.

Meanwhile, Iraq’s vast natural gas reserves, ranked 11thglobally with 127 trillion cubic feet, remain underutilized. Over 55% ofassociated gas is flared due to limited processing infrastructure, wastingvaluable resources and contributing to environmental damage.

Capturing and processing this gas could provide Iraq with asignificant revenue stream while reducing pollution. The country also imports40% of its electricity from Iran, costing billions annually. Developingdomestic gas resources could curb this dependence and stabilize Iraq’s energysupply. The $10 billion deal signed with TotalEnergies in 2023 to captureflared gas and generate 3 gigawatts of electricity, enough to power 3 millionhomes, offers a promising step forward.

"If implemented properly, these projects could helpIraq achieve energy independence," says energy consultant LaithAbdul-Rahman.

As the world transitions to renewable energy, Iraq mustprepare for a post-oil economy. Despite its vast solar potential, renewablescurrently contribute less than 1% of Iraq’s energy. The country enjoys one ofthe highest levels of solar exposure worldwide, with an average of 3,000 hoursof sunshine annually, ideal conditions for large-scale solar energy projects."We have an untapped solar energy goldmine," notes energy researcherZainab al-Tamimi. "If Iraq prioritizes solar investment, we could powerentire cities sustainably." Agreements with companies like Masdar(Turkiye) and PowerChina are already in place, but bureaucratic delays hinderprogress.

Iraq’s tax and customs systems, which contribute less than5% of GDP, also require urgent reform. Proper restructuring could significantlyboost revenues for public services such as healthcare and education.

Economist Ahmed Abdul-Rahman emphasizes, "If properlyreformed, taxation and customs revenues could significantly contribute toeconomic stability." Smuggling and corruption cost Iraq over $4 billionannually. A modernized customs system, including digital tax collection andenhanced transparency, could help recover these lost revenues. "Smugglingis bleeding Iraq’s economy," warns financial analyst Yasir Ali. "Amodernized customs system could recover billions."

Lastly, Iraq must adopt policies to support its strugglinglocal industries, which face strong competition from cheap imports, especiallyin textiles, electronics, and household products. Through tariff protections,subsidies, and quality standards, Iraq can revive these industries. The countryonce had a thriving textile sector, yet today, over 90% of clothing isimported. "Decades ago, Iraqis wore locally made garments. Now, we relyentirely on imports," recalls veteran textile manufacturer Abbasal-Dulaimi.