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Friday, 6 September, 2002, 07:16 GMT 08:16 UK
Iraq's stunted economic potential
Turkish trucks transporting Iraqi oil
Oil exports are Iraq's biggest asset

As the US and the UK consider military action against Iraq, BBC News Online looks at the country's battered economy and the possible impact of another war.
Iraq has the potential to be one of the richest countries in the world.

But, in pursuit of illusory conquests, the country's leaders have squandered its resources on the vagaries of war.

Much of the blame can be laid at the door of Iraqi President Saddam Hussein, who has once again incited America's wrath.

But the imposition of United Nations sanctions throughout the 1990s also straitjacketed the country's economic development.

The victims in this drama have been the long-suffering Iraqi people, many of whom live hand-to-mouth, surviving on food rations from the UN oil-for-food programme.

"The country has effectively been at war for 22 years," says Neil Partrick of the Economist Intelligence Unit (EIU).

Suffering

In a population of 23 million, many are desperately poor and at least half of the adult males are unemployed.

George Galloway, MP
Galloway visited Iraq after the Gulf War
"It is no longer as bad as it was," says George Galloway, the British MP and vocal campaigner against sanctions.

"When I visited the country in 1993, there was no oil-for-food programme and Iraq was really on its knees.

"People would literally fall down in the street through weakness and hunger."

For a country that still has a middle class and was once relatively prosperous, salaries are laughably low.

Hotel workers earn about $7 a month, while doctors make $20 and university professors earn $30.

Only people involved in the black market manage to live "ostentatiously", while families with relatives outside the country live on precious hand-outs, says Mr Galloway.

Minnow with giant potential?

The main prop for the economy has been the country's significant oil reserves, which if exploited properly could rival Saudi Arabia.

Iraq's dark years
1980-88: War with Iran
August 1990: Iraq invades Kuwait
1991: Gulf War
1996: UN oil-for-food programme allows Iraq to sell oil in return for imports of food and humanitarian supplies
1999: Limits on oil exports lifted
May 2002: Most limits on imports lifted
In the heyday of 1979 - one year before an eight-year war with Iran - Iraq produced 3.5 million barrels of oil a day.

Following the war, oil facilities were damaged, contributing to $100bn in economic losses for Iraq, according to the British Foreign Office.

The Gulf War in 1991 and harsh economic sanctions also battered the economy - crude estimates from the EIU calculate that the economy contracted by 50% that year.

Since then, the UN has slowly eased its restrictions on Iraq, but the country has still struggled to return to form.

Its oil production has not exceeded 2.5 million barrels a day since 1991, even though Iraq has the potential reserves to produce six million a day, says Mr Partrick.

Held up

The reasons for Iraq's stunted growth range from dips in the oil price to President Saddam's fondness for turning off the country's oil taps to show his displeasure of Western 'meddling'.

Oil facilities in Iraq
Iraq's oil facilities need investment
Iraq has also failed to upgrade its oil infrastructure.

This is partly because the government has opted to spend much of its money on defence - possibly building up an arsenal of chemical weapons - and maintaining its power base.

However, the UN regime has also made it difficult for the Iraqis to import spare parts for upgrading facilities.

Requests for new equipment have frequently been held up by UN sanction committees because of concerns they might be put to military use.

Lack of investment

Oil experts have visited Iraq to examine ways of boosting the industry, but since 11 September the US and the UK have put a stop to any foreign investment.

President Saddam Hussein
Saddam has little interest in economic reform
Iraq's current trading partners, which oppose military strikes by the US, include Russia, Jordan, Syria and Egypt.

Jordan, for example, is dependent on Iraq for its entire domestic oil needs, says Carlin Doyle of Oxford Economic Forecasting.

Even Nato member Turkey has bemoaned Iraq's economic isolation - it says it has lost about $40bn because of trade restrictions since the Gulf War.

War impact

Any military attack by the US and the UK would inevitably disrupt Iraq's oil exports.

Strikes would also damage infrastructure and lead to civilian casualties, both of which would feed through into a worsening of the economic situation.

President George W Bush and Prime Minister Tony Blair
Western leaders are debating the merits of war
Surprisingly, however, the EIU is predicting that Iraq could experience an economic rebound next year in spite of any war.

"Oil exports fluctuate anyway, so the impact would not be huge in that context," says Mr Partrick, who believes any war would be short-lived.

He adds that a possible change in regime as a result of war could also lead to economic reforms.

This view is backed by Ian Bremmer, president of the research firm, Eurasia Group, who argues that it has not been in President Saddam's interests to open up the economy completely.

"[His] power base would become vulnerable in the event of a rapid re-opening of international trade links and unrestricted flows of labour and investment," he says.

So, perversely, yet another war could deal Iraq a few good cards.

But as the US and the UK ponder their options, the horror of previous conflicts will be only too vivid in the minds of ordinary Iraqis.

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George Galloway, MP
"The basic standard of living is catastrophically low"

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See also:

06 Sep 02 | Middle East
05 Sep 02 | Americas
04 Sep 02 | Middle East
03 Sep 02 | Middle East
02 Sep 02 | Middle East
17 Aug 02 | Middle East
02 Aug 02 | Country profiles
15 May 02 | Middle East
07 May 02 | Americas
09 Jan 02 | Middle East
23 May 01 | Middle East
12 Apr 98 | ROAD TO THE BRINK
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