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.