In 1973, just before the first oil shock, Iraqi oil revenue was $1.8 billion. In 1978, as the second oil shock was taking hold, its oil revenues peaked at $23.6 billion. In 2002, it is estimated at about $15 billion. GDP growth was in double digits from 1973 to 1980 with the exception of 1974, when it was 7.2%. It was from these lofty heights that the regime of Saddam Hussein launched two wars whose effects on the Iraqi economy, even aside from the tragic human costs, proved devastating to the Iraqi economy. The Iraq-Iran War 1980 to 1988 began with Iraq's attempt to seize control of the economically and strategically important Shatt-al-Arab from Iran, which the countries had agreed to divide in a treaty in 1975. Saddam miscalculated that Iran could be easily dismembered during its revolutionary upheavals, and when the war ended, eight bloody years later, the Shatt-al-Arab, and all other border issues, returned to the status quo antebellum, leaving Iraq with no material gain and a debt of over $100 billion, much of it owed to Kuwait. Annual oil revenues for Iraq and Kuwait were roughly even—averaging about $16 billion a year—but Kuwait, instead of spending on armaments, had invested sizeable amounts in the West essentially doubling its returns. Kuwait refused to see the debts owed it by Iraq as money spent for its own defense, and insisted on being repaid, providing the economic trigger for Iraq's second disastrous foray—the invasion of Kuwait 2 August 1990, and its absorption as the 19th province of Iraq. For the first and, so far, only time the UN Security Council agreed to support collective action against an aggressive power, and Iraqi forces were driven out of Kuwait in the first Gulf War, February 1991. The UN imposed comprehensive economic, financial, and military sanctions, placing the Iraqi economy under siege. Acting on its own, the United States also froze all Iraqi assets in the United States and barred all economic transactions between US citizens and Iraq. Many other countries imposed similar sanctions on top of the UN-imposed embargo. UN Security Council resolutions authorized the export of Iraqi crude oil worth up to $1.6 billion over a limited time to finance humanitarian imports for the Iraqi people.
The effect of war in Kuwait and continuing economic sanctions reduced real GDP by at least 75% in 1991, on the basis of an 85% decline in oil production, and the destruction of the industrial and service sectors of the economy. Living standards deteriorated and the inflation rate reached 8000% in 1992. Estimates for 1993 indicated that unemployment hovered around 50% and that inflation was as high as 1000%. Because UN costs and reparations for Kuwait were taken out of permitted oil sales before being handing over to the Iraqi regime, the government's revenues were lower that total oil sales. The Organization of Arab Petroleum Exporting Countries (OAPEC) reports that Iraqi oil revenues at current prices were $365 million in 1994, $370 million in 1995 and $680 million in 1996. It should be noted that since the first Gulf War Iraq has refused to provide economic data to the UN or any other international organization, and all estimates are subject to wide variability and questions of reliability. Uncertainty is increased by a flourishing black market that has been responsible for an increasing share of domestic commerce. There were widespread expectations that the Hussein regime would soon fall from the weight of its disastrous political and economic miscalculations, but this did not happen, and by 1995 it had become apparent that the tight restrictions on oil sales were resulting in serious harm to the Iraqi people. The UN passed its first oil-for-food program (which the Iraqi regime refused to accept until 1996) allowing oil worth $5.26 billion to be sold every six months, with strict controls over how the money was spent. OAPEC reports that Iraqi oil revenues were about $4.6 billion in 1997 and $6.8 billion in 1998. In December 1999 the UN Security Council lifted the limits on Iraq's oil production, which then rose from 550, 000 bbl/d in November 1996 to an average of about 2.6 million bbl/d during 2000. The CIA estimates that real GDP growth fell by 5.7% in 2001 due to the slowdown in the world economy and lower oil prices. Per capita income in 2001 is estimated at about $2,500 by most sources.
By mid-2002, crude exports from Iraq had fallen below its normal capacity (about 2 million bbl/d) to an average of 630,000 bbl/d. According to the UN assessments, this low export level created a $2.64 billion shortfall in the oil-for-food program. One cause of the reduced exports was a stoppage of all oil exports by Baghdad for one month beginning 8 April 2002 as a protest against Israel. Iraq had urged all other Arab oil exporters to join the shutdown, but no other country followed Iraq in this attempt to use oil as a weapon to pressure Israel and its supporters. Low exports were also blamed on illegal surcharges of about 15–45 cents per barrel being levied by Iraq from about December 2000, and the tactic of "retroactive pricing" adopted by the United States and the United Kingdom in January 2001 to combat these surcharges. Both the surcharges and the retroactive pricing— whereby the price charged for Iraqi oil was revealed only after the sale, and then set at a level too high for a surcharge to be paid and still make a profit—raised the price and reduced demand for Iraqi oil. The concerns by the United States and the United Kingdom were that the surcharges were being used to fund a secret military build-up by Iraq. UN estimates are that from 1996 to 2002 the "oil-for-food" generated about $60 billion The US government estimates that through smuggling and illegal surcharges the Iraqi government secured about $6.6 billion from 1997 to 2001. On 14 May 2002, after Iraq had resumed oil exports, the UN Security Council approved a change in the oilfor-food program to add an extensive list of "dual-use" goods (goods that could be used for military as well as non-military purposes) that Iraq could not purchase with its oil revenues.
On 16 October 2002, President Bush signed the resolution passed by the US Congress authorizing the use of force in Iraq. On November 8, 2002 the UN Security Council unanimously adopted Resolution 1441 demanding UN arms inspectors be given unconditional access to search anywhere in Iraq for banned weapons, and requiring a "accurate, full and complete" accounting of all of its weapons of mass destruction within 30 days. After failure to secure a second resolution from the UN Security Council in February 2003 explicitly supporting a military invasion of Iraq—all members of the current Council were opposed except the United Kingdom—the United States and United Kingdom held to their intention to act without the UN. The attack was launched 20 March 2003, beginning with a surgical strike aimed at killing Saddam Hussein, which may or may not have succeeded, but in any case did not induce a surrender by the regime or the people. Holding as it does the second-largest oil reserves in the world, Iraq's economic future after the war was the subject of intense concern well before the war was opened, much less concluded. A December 2002 study by the James A. Baker Institute for Foreign Policy on Iraq's oil sector concluded, among other things that a "bonanza" of oil was not to be expected from Iraq in the near future because, among other things, the poor state of the sector's infrastructure and further likely damage from the war. In April 2003, the estimates were that contracts amounting to between $20 to $100 billion would be at play in the rebuilding of Iraq after the war, to be paid for with Iraqi oil.