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Chronicle of the Middle East and North Africa

Iraq: Of Great Resources and Deep Crises

Iraq: Of Great Resources
An Iraqi dives into the Shatt al-Arab river across from the Nahr Bin Omar oilfield in Iraq’s southern province of Basra on July 18, 2022. Hussein Faleh / AFP

Ali Noureddine

Iraq stands out due to the extent of its untapped potential for harnessing its natural resources, including its people, its strategic position, its gas and oil reserves, and its agricultural industry. All of these elements may be crucial to the nation’s economic recovery if the correct conditions are created.

Unfortunately, Iraq has not been able to fully utilize these resources, whether to support the recovery of its economy or to bring about social stability for its people, who are suffering from the challenges posed by weak public services and the absence of vital industries.

Unscaled natural resources

Iraq is thought to have the fifth-largest oil reserves in the world, with an estimated 145 billion barrels of known reserves. This amounts to around 17 percent of the Middle East’s overall oil reserves and 8 percent of the world’s total reserves. Iraq also ranks second in OPEC’s Organization of Petroleum Exporting Countries (after Saudi Arabia) in terms of oil production.

In terms of annual production, Iraq’s oil revenues increased from $33.92 billion in 2020 to nearly $75.65 billion in 2021, an increase of 123 percent, as a result of the rise in international oil prices. It is worth noting that in 2021 the average price of a barrel of oil increased to $68.38, or 1.78 times the previous year’s average price, which did not exceed $38.41 per barrel.

This increase in the price of a barrel of oil should have provided a significant boost to Iraq’s domestic economy, which relies on oil revenue for 85 percent of its public sector budget.

But there is much more to Iraq’s natural resources. With around 137 trillion cubic feet of proven reserves, Iraq is ranked 10th globally in terms of the total amount of verified gas reserves.

Moreover, more than 80 percent of Iraqi territory has yet to be explored for potential natural gas reserves which presents a boundless opportunity for the discovery of additional gas reserves in the future. Iraq should have been able to benefit from great economic opportunities in recent months as a result of the continuous rise in natural gas prices precipitated by the war in Ukraine.

Commercial, agricultural and demographic potential

In addition to its enormous natural riches, Iraq also has advantages related to its strategic location, which enables it to play a significant role in global commerce. Iran, which views Iraq as an essential commercial gateway to the east, and the Arabian Gulf, the region’s most significant economic and financial bloc, are the country’s geographical neighbors.

Additionally, it shares borders with the Levant, which provides important access to the Mediterranean Sea, and Turkey, which serves as a critical gateway to European markets. This clearly presents Iraq with an opportunity to combine the financial fruits of its natural wealth with the commercial capacities afforded by its location and the strategic role it can play vis-a-vis this location.

Furthermore, Iraq possesses nearly 23 million dunums of land (2.3 million hectares) that can be invested in agriculture. Mesopotamia is characterized by fertile soil and wide plains suitable for agricultural activity. This particular region is also home to an abundance of renewable groundwater, in fact more than 5 billion cubic meters, in addition to the waters of the Tigris and Euphrates rivers.

Perhaps the two rivers’ abundant water supplies and the land’s fertility contributed to the birth of great civilizations throughout history. Furthermore, if properly utilized, this potential may even enable Iraq to increase its agricultural exports and achieve food security self-sufficiency.

The most precious resource in Iraq is its young labor force, which can bring dynamism into any economic development of a country. Approximately 64 percent of the country’s population is between the ages of 15 and 25, according to statistics from the labor force survey. Additionally, Iraq has a thriving academic community that might considerably increase the skills and knowledge of the workforce.

Electricity shortage crisis

Iraq nevertheless has significant issues and difficulties despite all these advantages, which is remarkable given the nation’s wealth in natural resources. Despite possessing substantial oil and gas reserves, Iraqis continue to experience an electricity crisis, forcing them to invest in costly private generators to cover national power outages.

The demand for power to run air conditioners increases during the summer when temperatures soar to between 45 and 50 degrees Celsius. In reality, while Iraq needs approximately 28 gigawatts of power to meet its residents’ peak demands, the local output reaches just 18 gigawatts.

The fact that Iraq has spent more than $81 billion on the power industry in recent years and yet been unable to overcome this situation highlights the extent of waste and poor management in this sector in particular.

Due to the inability of key industries to operate during power outages, the ensuing effects on output and profitability, and the cost of Iraqis using private generators to produce electricity, Iraq is incurring an annual economic loss of about $40 billion. According to unofficial estimates, there are 4.5 million operational private generators in Iraq or one generator for every nine people.

Causes of the electricity crisis

The shortage of electricity in Iraq is caused by a number of issues, but they may all be linked to ineffective governance, waste, and improper management of public institutions. Due to a lack of refineries and plants, Iraq is unable to generate the natural gas required for the power sector despite having significant gas reserves. As a result, it must rely on its neighbors for gas supplies for its power plants.

In order to power its electricity sector, Iraq has racked up debt by importing gas shipments from Iran, which has reduced the quantities of gas it exports to Iraq even after the latter paid off its overdue debt, thus leading to further electricity shortages.

Furthermore, Iraq is forced to rely on gas imports from Iran despite burning massive amounts of gas released during oil extraction operations from oil fields since it lacks the infrastructure needed to handle, pump, and liquefy natural gas.

This yearly loss of gas measures would have been capable of supplying more than 3 million homes in the nation who today experience power outages owing to the lack of gas available to generate energy. In plainer terms, the deteriorating conditions in the power sector, which are currently taking a toll on the Iraqi people, are mostly due to mismanagement in the oil and gas industry.

The infrastructure of the sector, which is intended to deliver energy throughout the various districts of Iraq, is another component contributing to the electrical problem. This infrastructure suffers from a lack of strategically positioned electrical supply lines linking the governorates, which regularly causes electricity shortages in some areas, even when the required amounts of power are available.

The crisis is exacerbated by a lack of production capacity at existing plants, a deficit for which Iraqi authorities are trying to compensate by importing gas from the Gulf states.

Water and food shortages

Aside from the electricity crisis, all aspects of life in Iraq are plagued by a number of issues brought on by weak public administration and poor planning. Water shortage is the most pervasive of these challenges, as evidenced by the agriculture sector’s production declining by 50 percent.

The failure to store rainwater for use in irrigation operations, as well as the decline in the water level of the Tigris and Euphrates rivers, were the main causes of this particular crisis. Other contributing factors also include lack of investments necessary to extract groundwater in the required quantity.

This problem has led to the displacement of a large proportion of farmers, who lost the water resources needed to continue working their lands. This in turn  has contributed to rising unemployment, which today exceeds 14 percent according to figures from the Ministry of Planning.

Consequently, Iraq is no longer able to meet its own food demands due to the deterioration in cultivated land; the country’s food industry currently only account for 1 percent of the market’s requirements, a relatively low percentage for a country with vast agricultural lands.

With the start of the Ukrainian conflict and the excessive spike in food prices that followed, Iraq’s reliance on imported items currently compromises its food security, threatening its supply chains. Due to the high cost of imported food, the effects of this crisis on Iraq have made it all the more difficult for the majority of Iraqi households to meet their most basic food requirements.

It is evident that Iraq’s political inefficiency and the state’s incapacity to make the best of its resources are central to exacerbating the country’s woes. Despite the existence of enormous resources, all compounded crises are a sign of a serious failure in planning on the part of public administration, whose mission is to develop and safeguard the nation’s economy.

It is difficult to deny that Iraq’s political problems, stemming from sectarian strife, foreign meddling, and political discrepancies, stand in the way of the country’s constitutional institutions, creating ongoing turmoil.

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