Iraq has grappled with an unstable economy after years of civil war, which many Iraqis have blamed on governmental corruption, weakened infrastructure, and political infighting. Yet the country has received a new economic lifeline following the surge in oil revenues after Russia’s invasion of Ukraine.

In March, Iraq reported that oil revenues had skyrocketed, reaching their highest level in 50 years. The country’s oil ministry recorded the sale of “100,563,999 barrels for revenues of $11.07 billion, the highest revenue since 1972.”

Iraq’s oil revenues have kept increasing throughout 2022. In February, oil revenues hit their highest in eight years at $8.5 billion dollars, with daily exports of 3.3 million oil barrels. Then, following Russia’s invasion of Ukraine in February, oil prices spiked to levels not seen since the 2007-08 financial crisis. US Brent Crude prices hit a high of just under $140 per barrel.

In February, Iraqi oil revenues hit their highest in eight years at $8.5 billion dollars.

Iraq’s largest oil export partners are China and India. Yet European and American oil companies have subsequently penned new export deals with Iraq to divert from previous partnerships with Moscow. This is creating new opportunities for Baghdad to enter Western markets.

As over 90 percent of Iraq’s government revenues comes from oil sales, Iraq should theoretically benefit from these increases. Yet despite possessing an abundance of oil and gas reserves, Iraq has struggled to utilize them. There are doubts that the Iraqi government could use these increased revenues to alleviate its economic woes.

“While these oil revenues are the highest in history for Iraq’s oil industry, the country will only face limited improvements to its economy,” Dr. Heider Nima Bekheet, Professor of Economics at Kufa University, told Inside Arabia. “This is because the problem in Iraq is not a lack of money, but rather managing this money.”

“Thus, despite these increased oil revenues, we do not expect to see vast improvements in the Iraqi economy,” Dr. Bekheet added. “This is due to political differences and divisions within the country, mismanagement of the economy, and administrative and financial corruption.”

Iraq’s Economic Plight

Despite the surge in oil revenues, basic food staples which are imported from Russia and Ukraine are becoming increasingly expensive and will prevent citizens from experiencing significant improvements to their livelihoods. In March, protests erupted in southern Iraq after prices of cooking oils and flour increased in supermarkets, which exacerbated an already harsh consumer crisis.

“The rise in prices is strangling us, whether it is bread or other food products,” retired teacher Hassan Kazem, who joined protests in the city of Nasiriya, told AFP News Agency. “We can barely make ends meet.”

“The rise in prices is strangling us, whether it is bread or other food products.”

While the Iraqi Trade Ministry blamed the Ukraine war for the rise in prices, the government also pledged measures of assistance for Iraqis facing this consumer crisis. Among them were a monthly allowance of $70 for pensioners whose incomes are less than a million dinars (almost $700) and civil servants earning less than 500,000 dinars ($343), reported Al Jazeera.

Iraq has endured mounting unemployment and poverty rates, coupled with various political and administrative problems. While the successive civil conflicts have weakened the country’s infrastructure, Iraqis have also cited government corruption as a leading cause of the inability to rebuild the country’s economy. Iraq’s healthcare institutions have also been neglected due to governmental corruption, and this became even more evident throughout the coronavirus pandemic.

Consequentially, Iraq has also become a hub for drug smuggling, which has resulted in a high drug intake among the Iraqi population. This can largely be attributed to the rise in unemployment, showing how ordinary Iraqis have suffered due to increasing corruption.

Although Prime Minister Mustafa al-Kadhemi pledged to root out corruption after assuming his post in May 2020, largely by targeting individuals linked to financial malpractice, many Iraqis have felt that not enough structural reforms have been made within the government.

[MENA Region Faces Food Crisis Following War in Ukraine]

[Iraq’s Brain Drain Continues to Weigh Heavily on its Future]

[Iraq’s Road to Peace is Still Paved with Obstacles]

Internal Divisions

A key problem preventing Iraq’s economy recovery is domestic political divisions, which could worsen due to internal polarization over the Russia-Ukraine conflict. After all, Iran has supported Russia’s invasion and many pro-Iranian militias and politicians hold sway in Iraq, while Baghdad seeks to avoid harming ties with the West.

Jeanine Hennis-Plasschaert, Special Representative for the United Nations Assistance Mission for Iraq, warned on February 24 that continued divisions within the government following the parliamentary elections in October 2021 would continue to hinder the country’s reform hopes, particularly in the economy. The delay in forming a solid government could be forgiven “if we were witnessing vibrant exchanges on policy orientations, on development pathways and economic reform plans,” she said.

“However, so far,” she continues, “we are observing quite the opposite: hampering the change and reforms the country so desperately needs.”

Baghdad has largely avoided taking sides in the Russian-Ukraine conflict.

Although Russia’s invasion of Ukraine has exposed internal divisions within Iraq, Baghdad has largely avoided taking sides in the conflict. At the onset of the war, Baghdad voted on an Arab League statement which avoided condemning Moscow and simply called for respecting international law.

Moreover, Baghdad seeks to tread carefully and avoid continued dependency on Russian investments. Iraq’s central bank suggested on March 2 that Baghdad should halt any future financial deals with Moscow following comprehensive sanctions from the US and other NATO member-states. However, it did not suggest cutting ties with Moscow entirely.

This decision comes as Kadhemi’s government has tried to present an independent foreign policy, particularly related to energy partnerships, and apparently seeks to free the country from nearly two decades of geopolitical competition over Iraq, whether from Iran or the US. While containing divisions from the Russia-Ukraine conflict would be necessary to avoid more internal friction, taking control of the country’s oil exports could be another crucial step in aiding Iraq’s foreign policy independence.

Necessary Political Reforms

Although Iraq has an opportunity to capitalize on rising oil revenues, there are still concerns of economic mismanagement and that the newfound earnings from oil may not improve the livelihoods of ordinary Iraqis.

There are concerns that the newfound earnings from oil may not improve the livelihoods of ordinary Iraqis.

Iraqi economist Omar al-Rubaie called on Baghdad to invest $10 billion in its oil sector to increase production to eight million barrels per day, a sharp and ambitious increase from the 4.25 million Iraq was producing in early 2022. While it is important to improve the country’s oil and gas infrastructure, eradicating corruption, achieving a unified government, and reforming economic policies are all vital to seeing tangible improvements.

“Despite all these oil revenues, the Iraqi government wants to borrow again,” said Dr. Bekheet. “The government is looking to borrow up to 10 trillion dinars ($6.86 billion), which is a very dangerous move that would plunge the country into debt again.”

He sees no short-term resolutions to the problems of the Iraqi economy. “Many of the required changes are political, rather than economic matters,” Dr. Bekheet continued. “Iraq needs political reform and amendments to some parts of the Iraqi constitution to ensure a strong Iraqi government can deliver real economic improvements and fully utilize these oil revenues.”