Shafaq News
Every day, above the oil fields of southern Iraq, gas burnsoff into the sky in towers of orange flame. Iraq flares 1,200 million standardcubic feet of gas per day —enough, if captured, to power the industries thecountry doesn't have. Instead, Baghdad imports gas from Iran to generateelectricity for the factories that cannot run without it. It pays billions forthe fuel it is simultaneously destroying. The ships that arrive at Umm Qasrcarrying rice, sugar, and cooking oil are a symptom of the same logic: acountry that possesses what it needs, and cannot stop paying others to provideit.
Iraq’s GDP stood at $279.6 billion in 2024, according to theWorld Bank. In that same year, oil accounted for 89% of the country's foreignexchange earnings, with crude oil accounting for between 92 and 99% of totalexports. The country sits atop one of the largest hydrocarbon reserves onearth. And yet it cannot feed itself, power its factories reliably, ormanufacture goods that compete on its own domestic market.
The standard explanation —weak institutions, post-wardamage, incomplete reconstruction—describes symptoms while leaving the causeuntouched. The more accurate account is this: the political economy that oilbuilt in Iraq actively destroys the conditions under which domestic productioncould ever compete. Every boom has deepened the dependency rather than reducingit, not by accident but by design, because the system that distributes oilrevenues is also the system that governs, and it has no incentive to change.
$80 Billion in Imports
Iraq's annual import bill exceeds $80–90 billion in goods,according to Iraqi Ministry of Planning estimates. That number is strikingbecause of what it covers. Between 80 and 100% of many basic staples, includingwheat, rice, and sugar. The dependency on agricultural imports has beenbuilding since the mid-1960s, accelerating through each successive conflict,and never reversed during the periods of relative stability and high oil pricesthat should, theoretically, have enabled investment in domestic alternatives.
The USDA's Foreign Agricultural Service documented what thislooks like at ground level in its most recent grain reporting on Iraq. In onerecent drought year, the planted area for paddy rice fell by 96% compared tothe previous season, as the government restricted cultivation areas in thesouth due to water shortages. Iraq —a country bisected by the Tigris andEuphrates, ancient breadbasket of the Fertile Crescent— cannot reliably growits own rice.
The gap between what Iraq consumes and what it produces isnot a temporary problem awaiting the right infrastructure investment; it is thesettled outcome of a structural transformation that oil revenue accelerated andthat no government since 2003 has found either the tools or the political willto reverse.
Dutch Disease, Iraqi Edition
Economists have a precise term for what happened: Dutchdisease describes the way a resource boom creates overreliance on one sector atthe expense of others, operating through two channels: a resource movementeffect, where labor migrates from manufacturing to the booming sector, causingdirect deindustrialization; and a spending effect, where increased revenuesraise demand for non-tradable goods, causing indirect deindustrialization. Iraqexhibits both channels in their most acute form.
Oil extraction accounts for 55% of Iraqi GDP; manufacturing,construction, water, and electricity combined account for 8%. Agricultureaccounts for 4%. The tradable, productive sectors of the economy were notgradually outcompeted; they were crowded out by a state that, flushed withpetrodollars, found it cheaper and politically easier to employ people directlythan to build the conditions for a private economy.
Iraq's labor force numbers around 15 million people, andapproximately 42% work in the public sector, an outcome rooted in decades ofstate-centered economic policy, first institutionalized under the Ba'ath regimeand later reinforced during the post-2003 reconstruction period. The World Bankreported that the average Iraqi public employee generates 17 minutes ofeffective work per day. More than 10.5 million Iraqi citizens —approximately aquarter of the total population— receive a monthly salary from the state. Salary and pension obligations now exceed $48 billion annually, close to 40% ofthe federal budget, according to Iraq's Federal Board of Supreme Audit.
Every dinar spent retaining a surplus civil servant is adinar not spent on the power grid, the roads, or the credit facilities thatwould allow a private manufacturer to exist, let alone compete.
Factories That Cannot Run
Of all the structural obstacles facing Iraqi producers, noneis more concrete or more consequential than electricity, and the way thecountry manages its own energy.
Iraq is the world's second-largest gas-flaring country afterRussia, burning 1,200 million standard cubic feet per day while simultaneouslyimporting gas from Iran at a cost of billions of dollars annually, spendingroughly $2.78 billion on Iranian gas in 2021 alone, and twice that thefollowing year, according to the Washington Institute for Near East Policy. Thefuel that could power Iraqi industry is instead lit on fire above the fieldsthat produce it, while the state pays a neighbor for the replacement.
The supply gap this creates is severe, even before an acuteoutage in the summer season, Iraq generates around 24,000 megawatts,considerably less than the estimated 34,000 megawatts needed to meet localdemand. The International Energy Agency projects the deficit will persist: evenif all planned capacity additions are completed and transmission reformsimplemented, Iraq will still face a shortage of approximately 10,000 megawattsover the next five years.
For a manufacturer, unreliable electricity is not aninconvenience; it is a structural cost that no tariff protection can offset. Afactory running on backup diesel generators faces energy expenses far abovethose of competitors in Turkiye, Iran, or China, where power is stable andoften subsidized. Iraqi producers are asked to compete internationally with onehand tied behind their back, and then told the problem is that their hand isweak.
The financial structure of the electricity sector ensuresthe crisis cannot self-correct. Only about 20% of electricity bills are paid infull, driven by weak enforcement and a widespread public expectation thatelectricity should be a free public service. More than 50% of generatedelectricity is lost before billing through theft and inefficiency, and lessthan 30% of total production contributes to financial revenue, leaving onlyabout 10% of operational expenses covered by collections.
A ministry that recovers a tenth of its operating costscannot invest in the grid. A grid that cannot be invested in remainsunreliable. An industry that cannot rely on the grid cannot grow. The loop isclosed, and it has been closed for decades.
Tariff That Is Not a Tariff
Protective tariffs exist on paper for domesticmanufacturers. The government operates a Public Distribution System providingsubsidized staple foods, purchases grain harvests at above-market prices, andhas backed financing for over 1,300 industrial projects. Formally, thearchitecture of industrial protection is present.
What is also present —and what systematically neutralizesit— is the border. Cartels maintain control around Iraq's key crossing points,employing false trade invoicing whereby importers misrepresent or undervalueproducts to pay less import duty, while encouraging officials to ignoremandatory inspections. Analysts estimate that smuggling and illicit tradeactivities deprive the state of between three and four billion dollars in lostrevenue annually. A tariff that is not enforced at the point of entry is not atariff; it is an announcement.
Transparency International's 2024 Corruption PerceptionsIndex scored Iraq at 26 out of 100, against a world average of 43. The IMF, inits 2023 Article IV consultation, found that customs procedures required urgentmodernization and that anti-smuggling initiatives had not been implemented on ameaningful scale. It also recorded, without evident surprise, thatapproximately $2.5 billion was stolen from Iraq's General Commission for Taxesin 2021–22, only a fraction of which has been recovered.
owsThe Public Distribution System, meanwhile, provides genuineshort-term relief. Research by the WFP and the IPC found that the PDS sl thetransmission of global food price shocks to Iraqi consumers, with local pricesadjusting to roughly 68% of an international price increase after five months. But the same research concluded the system strains the public budget whilefailing to provide long-term protection from global price volatility.
Political Trap
This is the argument that matters most, and the one mosteconomic reporting on Iraq consistently avoids: import dependence is not apolicy problem awaiting a technical solution. It is the equilibrium output of arentier political settlement, and every actor inside that settlement has arational interest in preserving it.
Rentier dynamics have produced deeply rooted publicexpectations of state generosity. Any attempt to cut subsidies or restructurethe payroll risks provoking popular backlash —as Prime Minister Haider al-Abadifound directly when his 2015–18 reform efforts were met with mass protests. Thegovernment distributes oil revenues not primarily to develop the economy, butto maintain social peace.
Public employment is patronage institutionalized. Subsidizedimports are a transfer payment that happens to destroy the market for domesticproducers. The arrangement works, politically, for as long as oil pricescooperate.
They are not cooperating as the oil price required tobalance Iraq's budget rose to around $84 per barrel in 2024, up from $54 in2020, as spending expanded and non-oil revenues stagnated. With oil tradingwell below that threshold, Iraq is running a structural fiscal deficit whilebeing politically unable to address its causes. Non-oil GDP was projected toslow to just 1% in 2025 as falling oil prices and financing constraints weighedon government spending and consumer sentiment.
The IMF's 2025 Article IV mission delivered its verdictwithout diplomatic softening: Iraq's vulnerabilities have increased in recentyears due to a large fiscal expansion, and the country is struggling with highunemployment, an excessive state footprint, a weak banking sector, corruption,and an inefficient electricity sector. It called for customs enforcement,tariff reform, wage bill reduction, labor market liberalization, and governanceimprovements —presenting these not as optional enhancements but as interlockingnecessities. Iraq has received versions of the same prescription, from the sameinstitution, in nearly the same language, for more than a decade.
: Youth in despair, no jobs to share: Iraq’s workforce hanging in the air
Gas Will Keep Burning
Iraq will not resolve its import dependency through targetedsubsidies, above-market procurement prices, or financing windows for industrialprojects. These are interventions inside a system whose own logic produces theproblem they are designed to solve. The dependency will begin to close onlywhen the cost of maintaining the current settlement exceeds the cost ofdismantling it, when oil revenue falls far enough, for long enough, that thestate can no longer afford to employ a quarter of the population, subsidizeelectricity it cannot bill for, and look the other way at borders it does notcontrol.
That moment may be approaching as it has approached before—after 2014, after 2020— and passed without transformation. Whether this timeis different depends less on any particular minister or reform package than onwhether the fiscal pressure now building is severe enough to break thepolitical coalition that has made dependence the rational choice for twentyyears.
Until then, the gas will keep burning above the southernfields. The ships will keep arriving at Umm Qasr. And somewhere between theflame and the cargo hold lies the answer to a question Iraq has not yet decidedit wants to ask.
: Iraq's gas flaring paradox: a wealth of resources, a nation in need
Written and edited by Shafaq News staff.
