Wednesday, March 30, 2011

Iraq Most Oil Dependent Country In Middle East/North Africa

According to an October 2010 report by the International Monetary Fund (IMF), Iraq is the most oil dependent country in the Middle East and North Africa. In its Regional Economic Outlook: Middle East and Central Asia paper, Iraq was ranked number one out of twelve countries with 90% of its government revenue and 58% of its Gross Domestic Product (GDP) deriving from petroleum. The only other country that came close was Libya with around 55% of its GDP and 85% of its earnings coming from oil. Saudi Arabia, which is the largest producer in OPEC, depends upon oil for less than 30% of its GDP and approximately 78% of its revenue. Iraq's economy thus rises and falls based upon its oil industry.
(Special Inspector General for Iraq Reconstruction)

The Special Inspector General for Iraq Reconstruction (SIGIR) corroborates Iraq's heavy reliance upon oil. From 2004-2010 it noted that the country's GDP has largely been based upon the state budget, which is mostly based upon petroleum revenue. In 2010 for example, Iraq earned $48.83 billion from oil, had a budget of $72.36 billion, and a GDP of $84.14 billion. That close correlation between government spending, oil, and the GDP remains true for the last seven years. Farming is the other major sector of the Iraqi economy, but it has declined because of underinvestment, neglect, and drought, making the nation even more dependent upon oil.

Correlation Between Oil, Government Spending, And GDP In Iraq
(in billions)
2004 2005 2006 2007 2008 2009 2010 
GDP $25.77$31.38$45.08$56.98$86.53$65.84$84.14
Oil Revenue $16.52$21.86  $28.13  $35.88  $58.79  $37.02  $48.83  
Budget $33.39  $35.99  $32.10  $41.05  $72.18  $58.61  $72.36  

Economists talk about the resource curse, and Iraq is a perfect example. It has a large amount of oil, which dominates its economy. As a result, the government has neglected other industries. In fact, dependence upon petroleum usually proves to be a disincentive to develop other parts of the economy. Not only that, but oil is not labor intensive. That means without other productive businesses, the government usually has to step in to become the largest employer. That usually comes in the form of thousands of useless and unproductive jobs. All of those are true for Iraq. None of these factors are likely to change. Baghdad talks a lot about diversifying the economy and free market reforms, but given its position it will not be able to wean itself of oil or the state any time soon.


International Monetary Fund, "Regional Economic Outlook: Middle East and Central Asia," October 2010

Rodriguez, Paul, "How Iraq can build a robust economy," Washington Post, 3/6/11

Special Inspector General for Iraq Reconstruction," Quarterly Report and Semiannual Report to the United States Congress," 1/30/11

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