Bassam Raad / Researcher in Economic Affairs
Political economy and public finance scholars agree that oil abundance can turn from a “developmental blessing” into a “structural curse” if misused and if strategic visions for diversifying national income sources are absent. This phenomenon is known in economic literature as the “Resource Curse,” where the easy and massive influx of oil revenues leads to the paralysis of other productive sectors, the inflation of the state administrative apparatus, and the erosion of institutional incentives to build an efficient and fair tax and customs system.
Iraq stands today as one of the most prominent global examples embodying this structural curse; since the decision to nationalize oil in the 1970s, the Iraqi economy has gradually slipped into the abyss of the “rentier trap.” This has made the state almost absolutely dependent on crude oil export revenues to finance its inflated consumption expenditures, primarily current expenditures, in exchange for an almost complete decline of real productive sectors, such as agriculture, industry, and value-added services.
The recurring financial crises that battered Iraq following the collapse of oil prices in global markets, as occurred in 2008 and 2014, and during the COVID-19 pandemic in 2020, as well as the crisis of the suspension of oil exports through the southern outlet following regional geopolitical tensions in February of this year, have exposed the deep structural fragility of the Iraqi economy. When oil prices fall or oil export chains are disrupted, the state finds itself unable to secure unavoidable current expenditures, such as salaries, pensions, and debt service, without resorting to borrowing or depleting the foreign reserves held at the Central Bank, which threatens the monetary and financial stability of the entire country.
Based on the aforementioned, enhancing non-oil revenues in Iraq is no longer merely an intellectual luxury or an economic choice subject to political maneuvering; rather, it has become an existential necessity and a structural imperative to ensure the sustainability of the state and protect the rights of future generations.
