Iraq's economy is dominated by the petroleum sector, which has traditionally provided about 95% of foreign exchange earnings In the 1980s, financial problems caused by massive expenditures in the eight-year war with Iran and damage to oil export facilities by Iran led the government to implement austerity measures, borrow heavily, and later reschedule foreign debt payments; Iraq suffered economic losses of at least $80 billion from the war. After the end of hostilities in 1988, oil exports gradually increased with the construction of new pipelines and restoration of damaged facilities. Current GDP per capita of Iraq grew 56% in the '60s reaching a peak growth of 57% in the '70s. However, the current GDP per capita shrank by 23% in the '80s amid the Iran-Iraq War.
After the Fall of Saddam Hussein
Since the peak of 1980, the nominal GDP of Iraq has steadily shrunk to merely $12.3 billion in 2000. However removal of sanctions, after the overthrow of Saddam, had immediate effect. The nominal GDP had reached $55.4 billion by 2007 due to increase in oil output as well as international prices. In 2006, the real GDP growth was estimated at almost 17 percent.
Paul Bremer, chief executive of Iraq, planned to restructure Iraq's state owned economy with free market thinking. Order 39 laid out the framework for full privatization in Iraq, except for "primary extraction and initial processing" of oil, and permitted 100% foreign ownership of Iraqi assets. Paul Bremer also ordered a flat tax rate of 15% and allowed foreign corporations to repatriate all profits earned in Iraq. Opposition from senior Iraqi officials, together with the poor security situation, meant that Bremer's privatization plan was not implemented during his tenure, though his orders remain in place. In addition to approximately 200 other state owned businesses, privatization of the oil industry was scheduled to begin sometime in late 2005, though it is opposed by the Federation of Oil Unions in Iraq.
Bremer's transitional government featured figures close to the George W. Bush administration, such as grain-trading industry lobbyist Dan Amstutz, who was put in charge of agricultural policy in Iraq.
One of the key economic challenges was Iraq's immense foreign debt, estimated at $125 billion. Although some of this debt was derived from normal export contracts that Iraq had failed to pay for, some was a result of military and financial support during Iraq's war with Iran.
The Jubilee Iraq campaign argued that much of these debts were odious (illegitimate). However, as the concept of odious debt is not accepted, trying to deal with the debt on those terms would have embroiled Iraq in legal disputes for years. Iraq decided to deal with its debt more pragmatically and approached the Paris Club of official creditors.
In a December 2006 Newsweek International article, a study by Global Insight in London was reported to show "that Civil war or not, Iraq has an economy, and—mother of all surprises—it's doing remarkably well. Real estate is booming. Construction, retail and wholesale trade sectors are healthy, too, according to the report. The U.S. Chamber of Commerce reports 34,000 registered companies in Iraq, up from 8,000 three years ago. Sales of secondhand cars, televisions and mobile phones have all risen sharply. Estimates vary, but one from Global Insight puts GDP growth at 17 percent last year and projects 13 percent for 2006. The World Bank has it lower: at 4 percent this year. But, given all the attention paid to deteriorating security, the startling fact is that Iraq is growing at all."
Between 100,000 barrels per day (16,000 m³/d) and 300,000 barrels per day (48,000 m³/d) of Iraq’s declared oil production over the past four years could have been siphoned off through corruption or smuggling, according to a US Study from May 12, 2007
Traditionally, Iraq’s manufacturing activity has been closely connected to the oil industry. The major industries in that category have been petroleum refining and the manufacture of chemicals and fertilizers. Before 2003, diversification was hindered by limitations on privatization and the effects of the international sanctions of the 1990s. Since 2003, security problems have blocked efforts to establish new enterprises. The construction industry is an exception; in 2000 cement was the only major industrial product not based on hydrocarbons. The construction industry has profited from the need to rebuild after Iraq’s several wars. In the 1990s, the industry benefited from government funding of extensive infrastructure and housing projects and elaborate palace complexes.
From the 1990s until 2003, the international trade embargo restricted Iraq’s export activity almost exclusively to oil. In 2003 oil accounted for about US$7.4 billion of Iraq’s total US$7.6 billion of export value, and statistics for earlier years showed similar proportions. After the end of the trade embargo in 2003 expanded the range of exports, oil continued to occupy the dominant position: in 2004 Iraq’s export income doubled (to US$16.5 billion), but oil accounted for all but US$340 million (2 percent) of the total. In late 2004, sabotage significantly reduced oil output, and experts forecast that output, hence exports, would be below capacity in 2005 as well. In 2004 the chief export markets were the United States (which accounted for nearly half), Italy, France, Jordan, Canada, and the Netherlands. In 2004 the value of Iraq’s imports was US$21.7 billion, incurring a trade deficit of about US$5.2 billion. In 2003 the main sources of Iraq’s imports were Turkey, Jordan, Vietnam, the United States, Germany, and Britain. Because of Iraq’s inactive manufacturing sector, the range of imports was quite large, including food, fuels, medicines, and manufactured goods.