Iraq - Overview of economy

Iraq's economy has suffered greatly as a result of the United Nations sanctions, imposed following Iraq's military defeat at the hands of a U.S.-led coalition that freed

Kuwait after it was invaded by Iraq in 1990. The sanctions were imposed to contain militarily the regime of Saddam Hussein by ensuring that all weapons of mass destruction (such as nuclear, chemical, and biological weapons capable of killing large numbers of people indiscriminately) at its disposal are destroyed by a UN-appointed inspections committee. However, Iraq's incomplete compliance with UN resolutions pertaining to the destruction of its weapons has precluded the removal of the trade sanctions more than a decade after the war.

Iraq entered the 20th century as part of an enfeebled Ottoman Empire (a 700-year empire that spanned much of the Middle East and centered in what is now Turkey). By 1915, Iraq became a British mandate area administered by a civil government headed by a British high commissioner. In 1921, the British replaced their direct rule with a monarchy headed by King Faisal. Iraq became a sovereign independent state in 1932 after the British finally acceded to local demands for full independence. Iraq was proclaimed a republic in 1958, after the monarchy was overthrown by a military coup executed by officers under the leadership of General Abdul Karim Qasim, who became Iraq's first president. In fact, Iraq has been controlled by a series of strongmen, the latest of which is Saddam Hussein, who took power in 1979.

Oil, discovered in Iraq in the early 1950s, has made Iraq one of the world's largest oil producers. Its economy is largely dependent on the oil sector, which has traditionally accounted for about 95 percent of foreign exchange. Iraq's economy has, however, been on a downward trend since the early 1980s. Gains achieved during the initial years of the Ba'ath party (Iraq's only political party and the center of power in the country) rule were reversed as the Hussein regime sought to finance the 10-year war with Iran that broke out in 1980. As a result of the war, Iraq's oil production capabilities were curtailed, and the government's debts to Western nations for the purchase of military materiél grew considerably throughout the 1980s. Iraq sustained heavy debts as a result of its war with Iran. Accurate figures regarding Iraq's total external liabilities are hard to establish because the Iraqi government did not publish official information on its debt. In 1986, Iraq's total debt was estimated to be between US$50 billion and US$80 billion. Of this total, Iraq owed about US$30 billion to Saudi Arabia, Kuwait, and the other Gulf states. Most of this debt resulted from the sale of crude oil on Iraq's behalf. Iraq's total foreign debt today is estimated to be in the range of US$130 billion. Iraq has not made any debt payments since the United Nations' sale of its overseas assets to compensate the Kuwaiti victims of the invasion and to pay creditors.

Since 1996, Iraq has been allowed to export only a limited quantity of oil, worth US$2.14 billion every 6 months, in return for food and medical supplies to address the country's deteriorating humanitarian conditions after the war, which include a lack of clean water supplies and basic services. Of revenues accruing from the sale of oil, some 53 percent is used to finance the import of food and medicine for the Iraqi people, while 13 percent is being diverted by UN agencies to the Kurdish provinces in the north. The effects of the sanctions have led to a sharp increase in poverty and infant mortality, especially in the south, and much of the country's infrastructure is not functioning.