The modern Iraqi economy has been largely based on
petroleum. Most of the few large manufacturing industries have to do with oil.
During Hussein’s rule the Iraqi economy was adversely affected by four major factors: the war with Iran during the 1980s, an international oil glut in the 1980s and 1990s, the economic sanctions imposed by the United Nations (UN) after the invasion of Kuwait in 1990, and the Persian Gulf War in 1991. The combined effect of all these factors was the destruction of Iraq’s basic infrastructure (roads, bridges, power grids, and the like) and the country’s financial bankruptcy.
Studies done at the end of the 20th century revealed that Iraq’s real gross domestic product (GDP)—that is, its GDP adjusted for inflation—fell by 75 percent from 1991 to 1999. In the late 1990s the country’s real GDP was estimated at about what it was in the 1940s, prior to the oil boom and the modernization of the country. As a result, per capita income and the people’s calorie intake plunged from the levels of relatively better-off Third World countries to those of the desperately poor Fourth World states, such as Rwanda, Haiti, the Democratic Republic of the Congo, and Somalia. Other reports indicated that since the end of the Gulf War all aspects of Iraq’s economy have been devastated. Its valuable assets, as well as its basic social and economic infrastructure, have been squandered, eroded, or irrevocably destroyed. Iraq’s best-educated people have fled, and the value of its national currency, the dinar, has continued to decline, driving prices ever upward. The government continued to finance its spending commitments by printing money, thus guaranteeing that inflation would continue unabated.
The UN sanctions created widespread unemployment, skyrocketing inflation, and severe shortages of previously imported commodities, including medicine, medical equipment, animal vaccines, farm machinery, electricity-generating equipment, and water purification supplies. As a result of these shortages and the damage done to water and sewage treatment systems during the war, the incidence of disease and malnutrition rose sharply. In 1996 the UN began to allow Iraq to swap oil for food and medical supplies, marking the country’s first step away from near-total diplomatic and economic isolation since its invasion of Kuwait. However, this program was not going to solve the fundamental problems of a devastated economy and of a population impoverished by two successive wars and about a decade of severe economic sanctions. To make matters worse, Iraq’s official foreign reserves (estimated at $35 billion to $40 billion at the beginning of the 1980s) were totally drained, either spent to finance the war with Iran or misallocated on projects such as building dozens of luxury palaces for Hussein and his family. On top of this, the country was sinking in a mire of foreign debt, war reparations, and other financial obligations, which were certain to keep it in economic shambles for decades to come.