Shafaq News<\/p>\n
Every day, above the oil fields of southern Iraq, gas burns
\noff into the sky in towers of orange flame. Iraq flares 1,200 million standard
\ncubic feet of gas per day \u2014enough, if captured, to power the industries the
\ncountry doesn’t have. Instead, Baghdad imports gas from Iran to generate
\nelectricity for the factories that cannot run without it. It pays billions for
\nthe fuel it is simultaneously destroying. The ships that arrive at Umm Qasr
\ncarrying rice, sugar, and cooking oil are a symptom of the same logic: a
\ncountry that possesses what it needs, and cannot stop paying others to provide
\nit.<\/p>\n
Iraq\u2019s GDP stood at $279.6 billion in 2024, according to the
\nWorld Bank. In that same year, oil accounted for 89% of the country’s foreign
\nexchange earnings, with crude oil accounting for between 92 and 99% of total
\nexports. The country sits atop one of the largest hydrocarbon reserves on
\nearth. And yet it cannot feed itself, power its factories reliably, or
\nmanufacture goods that compete on its own domestic market.<\/p>\n
The standard explanation \u2014weak institutions, post-war
\ndamage, incomplete reconstruction\u2014describes symptoms while leaving the cause
\nuntouched. The more accurate account is this: the political economy that oil
\nbuilt in Iraq actively destroys the conditions under which domestic production
\ncould ever compete. Every boom has deepened the dependency rather than reducing
\nit, not by accident but by design, because the system that distributes oil
\nrevenues is also the system that governs, and it has no incentive to change.<\/p>\n
$80 Billion in Imports<\/p>\n
Iraq’s annual import bill exceeds $80\u201390 billion in goods,
\naccording to Iraqi Ministry of Planning estimates. That number is striking
\nbecause of what it covers. Between 80 and 100% of many basic staples, including
\nwheat, rice, and sugar. The dependency on agricultural imports has been
\nbuilding since the mid-1960s, accelerating through each successive conflict,
\nand never reversed during the periods of relative stability and high oil prices
\nthat should, theoretically, have enabled investment in domestic alternatives.<\/p>\n
The USDA’s Foreign Agricultural Service documented what this
\nlooks like at ground level in its most recent grain reporting on Iraq. In one
\nrecent drought year, the planted area for paddy rice fell by 96% compared to
\nthe previous season, as the government restricted cultivation areas in the
\nsouth due to water shortages. Iraq \u2014a country bisected by the Tigris and
\nEuphrates, ancient breadbasket of the Fertile Crescent\u2014 cannot reliably grow
\nits own rice.<\/p>\n
The gap between what Iraq consumes and what it produces is
\nnot a temporary problem awaiting the right infrastructure investment; it is the
\nsettled outcome of a structural transformation that oil revenue accelerated and
\nthat no government since 2003 has found either the tools or the political will
\nto reverse.<\/p>\n
Dutch Disease, Iraqi Edition<\/p>\n
Economists have a precise term for what happened: Dutch
\ndisease describes the way a resource boom creates overreliance on one sector at
\nthe expense of others, operating through two channels: a resource movement
\neffect, where labor migrates from manufacturing to the booming sector, causing
\ndirect deindustrialization; and a spending effect, where increased revenues
\nraise demand for non-tradable goods, causing indirect deindustrialization. Iraq
\nexhibits both channels in their most acute form.<\/p>\n
Oil extraction accounts for 55% of Iraqi GDP; manufacturing,
\nconstruction, water, and electricity combined account for 8%. Agriculture
\naccounts for 4%. The tradable, productive sectors of the economy were not
\ngradually outcompeted; they were crowded out by a state that, flushed with
\npetrodollars, found it cheaper and politically easier to employ people directly
\nthan to build the conditions for a private economy.<\/p>\n
Iraq’s labor force numbers around 15 million people, and
\napproximately 42% work in the public sector, an outcome rooted in decades of
\nstate-centered economic policy, first institutionalized under the Ba’ath regime
\nand later reinforced during the post-2003 reconstruction period. The World Bank
\nreported that the average Iraqi public employee generates 17 minutes of
\neffective work per day. More than 10.5 million Iraqi citizens \u2014approximately a
\nquarter of the total population\u2014 receive a monthly salary from the state.
\nSalary and pension obligations now exceed $48 billion annually, close to 40% of
\nthe federal budget, according to Iraq’s Federal Board of Supreme Audit.<\/p>\n
Every dinar spent retaining a surplus civil servant is a
\ndinar not spent on the power grid, the roads, or the credit facilities that
\nwould allow a private manufacturer to exist, let alone compete.<\/p>\n
Factories That Cannot Run<\/p>\n
Of all the structural obstacles facing Iraqi producers, none
\nis more concrete or more consequential than electricity, and the way the
\ncountry manages its own energy.<\/p>\n
Iraq is the world’s second-largest gas-flaring country after
\nRussia, burning 1,200 million standard cubic feet per day while simultaneously
\nimporting gas from Iran at a cost of billions of dollars annually, spending
\nroughly $2.78 billion on Iranian gas in 2021 alone, and twice that the
\nfollowing year, according to the Washington Institute for Near East Policy. The
\nfuel that could power Iraqi industry is instead lit on fire above the fields
\nthat produce it, while the state pays a neighbor for the replacement. <\/p>\n
The supply gap this creates is severe, even before an acute
\noutage in the summer season, Iraq generates around 24,000 megawatts,
\nconsiderably less than the estimated 34,000 megawatts needed to meet local
\ndemand. The International Energy Agency projects the deficit will persist: even
\nif all planned capacity additions are completed and transmission reforms
\nimplemented, Iraq will still face a shortage of approximately 10,000 megawatts
\nover the next five years.<\/p>\n
For a manufacturer, unreliable electricity is not an
\ninconvenience; it is a structural cost that no tariff protection can offset. A
\nfactory running on backup diesel generators faces energy expenses far above
\nthose of competitors in Turkiye, Iran, or China, where power is stable and
\noften subsidized. Iraqi producers are asked to compete internationally with one
\nhand tied behind their back, and then told the problem is that their hand is
\nweak.<\/p>\n
The financial structure of the electricity sector ensures
\nthe crisis cannot self-correct. Only about 20% of electricity bills are paid in
\nfull, driven by weak enforcement and a widespread public expectation that
\nelectricity should be a free public service. More than 50% of generated
\nelectricity is lost before billing through theft and inefficiency, and less
\nthan 30% of total production contributes to financial revenue, leaving only
\nabout 10% of operational expenses covered by collections. <\/p>\n
A ministry that recovers a tenth of its operating costs
\ncannot invest in the grid. A grid that cannot be invested in remains
\nunreliable. An industry that cannot rely on the grid cannot grow. The loop is
\nclosed, and it has been closed for decades.<\/p>\n
Tariff That Is Not a Tariff<\/p>\n
Protective tariffs exist on paper for domestic
\nmanufacturers. The government operates a Public Distribution System providing
\nsubsidized staple foods, purchases grain harvests at above-market prices, and
\nhas backed financing for over 1,300 industrial projects. Formally, the
\narchitecture of industrial protection is present.<\/p>\n
What is also present \u2014and what systematically neutralizes
\nit\u2014 is the border. Cartels maintain control around Iraq’s key crossing points,
\nemploying false trade invoicing whereby importers misrepresent or undervalue
\nproducts to pay less import duty, while encouraging officials to ignore
\nmandatory inspections. Analysts estimate that smuggling and illicit trade
\nactivities deprive the state of between three and four billion dollars in lost
\nrevenue annually. A tariff that is not enforced at the point of entry is not a
\ntariff; it is an announcement.<\/p>\n
Transparency International’s 2024 Corruption Perceptions
\nIndex scored Iraq at 26 out of 100, against a world average of 43. The IMF, in
\nits 2023 Article IV consultation, found that customs procedures required urgent
\nmodernization and that anti-smuggling initiatives had not been implemented on a
\nmeaningful scale. It also recorded, without evident surprise, that
\napproximately $2.5 billion was stolen from Iraq’s General Commission for Taxes
\nin 2021\u201322, only a fraction of which has been recovered.<\/p>\n
ows<\/a>The Public Distribution System, meanwhile, provides genuine Political Trap<\/p>\n This is the argument that matters most, and the one most Rentier dynamics have produced deeply rooted public Public employment is patronage institutionalized. Subsidized They are not cooperating as the oil price required to The IMF’s 2025 Article IV mission delivered its verdict
\nshort-term relief. Research by the WFP and the IPC found that the PDS sl the
\ntransmission of global food price shocks to Iraqi consumers, with local prices
\nadjusting to roughly 68% of an international price increase after five months.
\nBut the same research concluded the system strains the public budget while
\nfailing to provide long-term protection from global price volatility.<\/p>\n
\neconomic reporting on Iraq consistently avoids: import dependence is not a
\npolicy problem awaiting a technical solution. It is the equilibrium output of a
\nrentier political settlement, and every actor inside that settlement has a
\nrational interest in preserving it.<\/p>\n
\nexpectations of state generosity. Any attempt to cut subsidies or restructure
\nthe payroll risks provoking popular backlash \u2014as Prime Minister Haider al-Abadi
\nfound directly when his 2015\u201318 reform efforts were met with mass protests. The
\ngovernment distributes oil revenues not primarily to develop the economy, but
\nto maintain social peace. <\/p>\n
\nimports are a transfer payment that happens to destroy the market for domestic
\nproducers. The arrangement works, politically, for as long as oil prices
\ncooperate.<\/p>\n
\nbalance Iraq’s budget rose to around $84 per barrel in 2024, up from $54 in
\n2020, as spending expanded and non-oil revenues stagnated. With oil trading
\nwell below that threshold, Iraq is running a structural fiscal deficit while
\nbeing politically unable to address its causes. Non-oil GDP was projected to
\nslow to just 1% in 2025 as falling oil prices and financing constraints weighed
\non government spending and consumer sentiment. <\/p>\n
\nwithout diplomatic softening: Iraq’s vulnerabilities have increased in recent
\nyears due to a large fiscal expansion, and the country is struggling with high
\nunemployment, an excessive state footprint, a weak banking sector, corruption,
\nand an inefficient electricity sector. It called for customs enforcement,
\ntariff reform, wage bill reduction, labor market liberalization, and governance
\nimprovements \u2014presenting these not as optional enhancements but as interlocking
\nnecessities. Iraq has received versions of the same prescription, from the same
\ninstitution, in nearly the same language, for more than a decade.<\/p>\n