Why isn’t Iraq leveraging its oil revenue to bring in foreign investments like Kuwait and Saudi Arabia, Are extended sanctions to blame?
While countries like Kuwait and Saudi Arabia utilized their oil revenue to entice foreign investment and bolster their economy, Iraq seems to have struggled to do the same. This could be attributed to various factors. It has been almost twenty years since the United States invaded Iraq, and the country has experienced multiple economic ups and downs due to its political landscape, geographic location, internal conflicts, socio-economic struggles, global health crisis, and terrorism. For instance, from 2000-2010 there was a positive influx of foreign direct investment, signaling a stronger economy, but this changed drastically after 2014 with the emergence of ISIS and the subsequent global pandemic.
"Following the 2003 U.S. invasion, the sanctions regime was largely ended on May 22, 2003 with an exception related to arms and oil revenue." See International Sanctions Against Iraq
Maintaining a positive outlook for the future is crucial, despite current challenges. Iraq possesses abundant resources and financial capabilities. With global demand for oil remaining high, it continues to serve as a valuable commodity both domestically and globally, as well as in various industrial products. As such, Iraq can expect to generate considerable revenue from its oil exports in the years to come. By implementing digital financial systems, reassessing public salaries, cracking down on money laundering, and improving trade and fiscal policies while reducing corruption, Iraq can attract further sources of income such as foreign direct investment. Creating a regulated and transparent business environment will also promote foreign investment in Iraqi enterprises.
Iraq's economy is heavily dependent on crude oil and petroleum products exports. According to the Iraqi federal budget, crude oil export revenues will be $89.425 billion by 2023, and petroleum product export revenues will be $769 million. Combined, these accounts for 87.14 % of the federal budget's $103.502 billion revenue.
In March 2024, the Iraqi market saw a surge in crude oil prices, reaching $84.7 per barrel. This increase was a result of Saudi Arabia reducing their oil exports by 2.2 million barrels, which had a significant impact on global demand and supply. As a member of OPEC and a producer of 4.2 million barrels per day, this should have resulted in a considerable revenue boost for Iraq. However, due to the inflexible nature of Iraq's Federal Budget and slow policy response to current events, this has not been the case. For instance, the delayed release of the federal budget in 2022 has impacted its effectiveness. Additionally, in 2023, an ICC ruling suspended 400,000 barrels per day of crude oil exports from the Kurdish region through the Iraq-Turkish pipeline. Furthermore, 90,000 barrels per day were also put on hold by the North Oil Company (NOC) in the first quarter of 2023. Despite these disruptions occurring early on in the year and the budget being approved in June, fiscal policies did not adapt accordingly.
Iraq has the potential to attract foreign investment due to two main factors. Firstly, there is room for growth in the Iraqi market as there are currently unmet demands that can be met with available opportunities. For instance, the cultivation of dates in the south and central regions, as well as pomegranates in the north, presents lucrative prospects for exporting these products on a global scale. As such, these markets are highly attractive to foreign investors. Secondly, Iraq's prominent position as the second largest oil producer within OPEC means that it has a strong hold on the irreplaceable demand for oil worldwide. This puts them in a favorable position for experiencing rapid economic growth and becoming an emerging market. Through implementing various forms of digitization in institutions such as banking systems and national and international investments, Iraq's emerging markets have the ability to support both domestic demands and exports effectively.
