The UN sanctions imposed on Iraq since 1990 have severely affected the social fabric and living conditions in the country. As a result of the severe deterioration of services—including water and sanitation, health care, and education—the living standards of all Iraqis have declined. Rising unemployment and inflation , which was estimated at around 250 percent in 1995 and 135 percent in 1999, coupled with the falling purchasing power of salaries and rising prices, have deepened social divisions and inequalities, with all sectors of the society growing more impoverished. Wealth as of 2001 is concentrated in the hands of a small privileged group of regime supporters, mainly from among the military and the business community who have been allowed to benefit from the sanctions. This group is heavily involved in black market currency dealing and the smuggling of food and merchandise on a regional scale.
The economic embargo has also had an uneven impact on different Iraqi regions. Ethnic, religious, and tribal rivalries have always been the dominant feature of Iraqi society. The Sunni-dominated central government in Baghdad has historically discriminated against the Shi'ites in the south and the Kurds in the north. Systematic efforts to "Arabize" the predominantly Kurdish region in the north resulted in a rebellion in the 1970s that brought the Kurds further retribution. Under the sanctions regime, living conditions in the northern provinces that are under Kurdish control have improved, partly because the UN, rather than the government of Iraq, is administering the oil-for-food program there, and partly as a result of the infusion of higher per capita international humanitarian assistance to this region between 1991-96. The future social and economic prospects of this region, however, remain uncertain, given that the status of the region is yet to be determined.
The predominantly Shi'ite south, which witnessed an uprising against the Sunni-controlled Baghdad government in the wake of the 1991 war, has been less fortunate. The military continued its water-diversion and other projects in the south designed to displace the Shi'ite community there, known as the "marsh Arabs." Since the 1980s, the government has drained most of the southern areas by either drying up or diverting the streams and rivers, effectively cutting off water supplies to the Shi'ite community inhabiting those areas for thousands of years.
The government also limited the delivery of food, medical supplies, drinking water, and transportation to the region. The regime has used food rations allowed under the oil-for-food program to reward regime supporters and silence opponents. As a result of this policy, the humanitarian conditions of Shi'ites in the south continued to deteriorate, despite a significant expansion of the oil-for-food program after 1997.