Economy of Iraq
The economy of Iraq is dominated by the oil sector. The IFAD has classified Iraq as an oil-rich upper middle income country. In 2025, the economy is estimated to be at $690 billion. making it as the fifth largest economy in the Arab world, seventh largest in the Middle East and North Africa and world's 51st largest. It is one of the top five Arab countries with gold reserves and 30th globally.
Iraq experienced economic growth in the 1970s. Oil industry was nationalized in 1972, followed by a sharp increase in the price of petroleum. Revenue generated from the oil sector were utilized in development and expanding social services, which turned Iraq into a highly developed country. However, the Gulf War and subsequent sanctions drained the country economically. An oil-for-food program by the United Nation, allowed Iraq to sell oil in exchange of humanitarian goods for the civilian population.
Gradually, the economic situation quite improved. Many countries resumed trade with Iraq and the government rebuilt large swaths of country after the war. However, the invasion of Iraq in 2003 and the war damaged much of the country's infrastructure. Although economy expanded rapidly due to privatization, it was interrupted by escalating war. Since 2022, under the leadership of Prime MInister Muhammad Shayya al-Sudani, Iraq has seen a period of relative economic stability.
Iraq is traditionally an oil-rich state, with oil industry being the dominant sector. In 2024, it provided 89% of foreign exchange earning. Crude oil accounts between 92-99% of Iraq's total exports, followed by fruits, aluminum and dates. While import goods include foods, medicine and manufactured products such as ships, automobiles and consumer electronics. Major trade partners of Iraq are the United States, China, India, Greece, Turkey and the United Arab Emirates. Iraq has strong economic and trade ties with numerous countries, with large investments from China and Saudi Arabia.
History
Monarchy
In the early monarchy era, economic institutions developed slowly. The Iraqi economy was largely market-oriented, but based more on feudal and traditions rather than on modern principles. King Faisal, the first king of Iraq, laid foundations for the modern Iraqi state. Under his rule, an oil pipeline was built between Kirkuk and Haifa. Then finance minister Sassoon Eskell was instrumental in forming Iraq's financial system and oil industry.A development board was established in 1950. The board regulated five-year plans that emphasized three priorities—agriculture, transportation and communication and construction. The agriculture part also included irrigation and flood control. The board was well-received by the commentators for using most of the country's oil income for capital investment and infrastructure development. It also received criticism for over-emphasizing agriculture and ignoring industry and human resources, which would have appealed to two increasingly important constituents—educated elites and workers. Neglecting these groups became one of the minor reasons which provoked the coup in 1958.
Economic growth
During its modern history, the oil sector has provided about 99.7% of foreign exchange earnings. Agrarian economy underwent rapid development following the 14 July Revolution in 1958. It had become the third-largest economy in the Middle East by 1980. This occurred in part because of the industrialization and infrastructure development initiatives led by Saddam Hussein, which included irrigation projects, railway and highway construction, and rural electrification. In the 1980s, financial problems caused by massive expenditures in the Iran–Iraq War and damage to oil export facilities by Iran's military led the government to implement austerity measures, to borrow heavily, and to later reschedule foreign debt payments.Nominal GDP grew by 213% in the 1960s, 1325% in the 1970s, 2% in the 1980s, −47% in the 1990s, and 317% in 2000s. Real GDP per capita increased significantly during the 1950s, 60s and 70s, which can be explained by both higher oil production levels as well as oil prices, which famously peaked in the 1970s due to the OPEC's oil embargo, causing the 1973 oil crisis. In the following two decades, however, GDP per capita in Iraq dropped substantially because of multiple wars, namely the 1980-88 war with Iran, the 1990-1991 Gulf War.
Before the outbreak of the war with Iran in September 1980, the economic outlook was positive. In 1979, oil production reached a level of 560,000 m³ per day, and oil revenues were 21 billion dollars in 1979 and $27 billion in 1980 due to record oil prices. Iraq had amassed an estimated $35 billion in foreign exchange reserves. It was believed to have one of the best education and health care systems in the Middle East, and thousands of migrant workers from Egypt, Somalia, and the Indian subcontinent were employed in construction projects.
The Iran–Iraq War and the 1980s oil glut depleted Iraq's foreign exchange reserves, devastated its economy and left the country with a foreign debt of more than $40 billion. Iraq suffered economic losses of at least $80 billion from the war. In 1988, the hostilities ended. Oil exports gradually increased with the construction of new pipelines and restoration of damaged facilities, but again underwent a sharp decline after the Persian Gulf War.
A U.S government report in June 2003 stated:
In the 1980s, Iraq had one of the Arab world's most advanced economies. Though buffeted by the strains of the Iran–Iraq War, it had – besides petroleum – a considerable industrial sector, a relatively well-developed transport system, and comparatively good infrastructure. Iraq had a relatively large middle class, per capita income levels comparable to Venezuela, Trinidad or Korea, one of the best educational systems in the Arab world, a well educated population and generally good standards of medical care.
Sanctions
Iraq's seizure of Kuwait in August 1990, subsequent international economic sanctions on Iraq, and damage from military action by the international coalition beginning in January 1991, drastically reduced economic activity. The regime exacerbated shortages by supporting large military and internal security forces and by allocating resources to key supporters of the ruling Party. GDP dropped to one-fourth of the country's 1980 GDP and continued to decline under the postwar international sanctions, until receiving aid from the U.N. Oil-for-Food Programme in 1997.The implementation of the UN's Oil for Food program in December 1996 helped improve economic conditions. For the first six six-month phases of the program, Iraq was allowed to export increasing amounts of oil in exchange for food, medicine, and other humanitarian goods. In December 1999, the UN Security Council authorized Iraq to export as much oil as required to meet humanitarian needs. Per capita, food imports increased substantially, while medical supplies and health care services steadily improved, though per capita economic production and living standards were still well below their prewar level.
Iraq changed its oil reserve currency from the U.S. dollar to the euro in 2000. However, 28% of Iraq's export revenues under the program were deducted to meet UN Compensation Fund and UN administrative expenses. The drop in GDP in 2001 was largely the result of the global economic slowdown and lower oil prices.
Iraq experienced a modest growth by 2000, when the government attempted to make improvements and reorganizations in the economic system. Oil exports gradually increased as new pipelines were constructed and damaged facilities were restored.
After the invasion of Iraq in 2003
The removal of sanctions on 24 May 2003 and rising oil prices in the mid-to-late 2000s led to a doubling in oil production from a low of 1.3 mbpd during the turbulence of 2003 to a high of 2.6 mbpd in 2011. Furthermore, reduced inflation and violence since 2007 have translated to real increases in living standards for Iraqis. One of the key economic challenges was Iraq's immense foreign debt, estimated at $130 billion. Although some of this debt was derived from normal export contracts that Iraq had failed to pay for, some was a result of military and financial support during Iraq's war with Iran.The Coalition Provisional Authority made efforts to modernize the economy after the 2003 U.S.-led invasion, through privatization and reducing the country's foreign debt. As a result Iraq's economy expanded rapidly during this time, though growth was stunted by the insurgency, civil war, economic mismanagement, and oil shortages caused by outdated technology. Since mid-2009, oil export earnings have returned to levels seen before Operation New Dawn. Government revenues rebounded, along with global oil prices. In 2011, Iraq increased oil exports above their then-current level of per day as a result of new contracts with international oil companies. The export was thought likely to fall short of the per day forecasting in the budget. Iraq's contracts with major oil companies had the potential to greatly expand oil revenues, but Iraq needed to upgrade its oil processing, pipeline, and export infrastructure to enable these deals to reach their potential.
An improved security environment and an initial wave of foreign investment helped to spur economic activity, particularly in the energy, construction, and retail sectors. Broader economic improvement, long-term fiscal health, and sustained increases in the standard of living still depended on the government passing major policy reforms and the continued development of Iraq's massive oil reserves. Although foreign investors viewed Iraq with increasing interest in 2010, most were still hampered by difficulties acquiring land for projects and other regulatory impediments.
The Jubilee Iraq campaign argued that much of these debts were odious. However, as the concept of odious debt is not accepted, trying to deal with the debt on those terms would have embroiled Iraq in legal disputes for years. Iraq decided to deal with its debt more pragmatically and approached the Paris Club of official creditors.
In a December 2006 Newsweek International article, a study by Global Insight in London was reported to show "that Civil war or not, Iraq has an economy, and—mother of all surprises—it's doing remarkably well. Real estate is booming. Construction, retail and wholesale trade sectors are healthy, too, according to . The U.S. Chamber of Commerce reports 34,000 registered companies in Iraq, up from 8,000 three years ago. Sales of secondhand cars, televisions and mobile phones have all risen sharply. Estimates vary, but one from Global Insight puts GDP growth at 17 per cent last year and projects 13 per cent for 2006. The World Bank has it lower: at 4 per cent this year. But, given all the attention paid to deteriorating security, the startling fact is that Iraq is growing at all."