Iraq Facing Bleak Economic Future

By John T. Haldane

In less than a year, Iraq has been transformed from a growing financial power in the Middle East to an economic cripple. Some experts estimate that rebuilding the country's war-damaged petrochemical, transportation and industrial infrastructure will cost up to $200 billion and take 10 years or more to complete.

Coalition air raids targeted power plants, telecommunications centers, bridges and oil refineries. For example, allied bombs and missiles destroyed at least 30 bridges over the Tigris and Euphrates rivers, thus incapacitating the nation's transportation system.

A UN mission returned from Iraq in March and announced that "The combination of allied bombing and multi-pronged rebellion has reduced Iraq to 'a pre-industrial age.'"

One US official said: "The Iraqis spent at least $160 billion on infrastructure projects in the 1980s. Assuming that most of them have been damaged or destroyed, reconstruction will cost considerably more in 1991 dollar terms." The official estimated that it will take at least seven years to rebuild what has been smashed, assuming that Iraq can come up with the huge amounts of funds needed for replacement equipment and the foreign expertise needed to install it. "If the government can't raise the money, Iraq will stay at a primitive subsistence level for 20 years or more," he said.

Since Iraq depends on oil exports for approximately 97 percent of its national income, extensive damage to oil production and pumping facilities has been especially harmful. Sir Patrick Hine, chief of British air operations in Operation Desert Storm, estimated that bombing destroyed at least 80 percent of Iraq's oil-refining capacity.

All plants that operate on electricity were shut down.

Turkish officials report that Iraq's strategic two-way flow lines between Basra and Kirkuk were badly damaged by allied bombing, leaving the pipeline from Iraq's northern fields to Turkey the only viable export outlet. The repair of this pipeline would mean that Iraq could eventually move 1 million barrels per day (b/d) to a Turkish port.

Iraq's Persian Gulf and Red Sea export terminals were so badly damaged that it may be years until oil can be moved out in any significant quantities. Before exports can be resumed through the Persian Gulf and through the IPSA pipeline system through Saudi Arabia to Yanbu on the Red Sea, the PS- I pump station south of Zubair must be rebuilt. This unit controls the flow of oil into the IPSA pipeline as well as the line delivering oil to the Mina Al-Bakr terminal on the Gulf, which before the war had an export capacity of 800,000 b/d. However, this terminal also was badly damaged.

The first step in economic reconstruction must be the restoration of the nation's power grid. Repair work on the industrial, transportation and even the agricultural sectors cannot begin without adequate electricity. The allied definition of military targets included all of the country's power-generating facilities. Consequently, all plants that operate on electricity were shut down. Nor are there any effective communications or transportation services. The breakdown of water purification and sewage treatment facilities has created the immediate threat of an outbreak of cholera and other diseases. In Baghdad, water supplies dropped to less than 10 percent of pre-war levels.

The power losses also affect irrigation projects, the backbone of Iraqi agriculture. The UN mission reported that food supplies were "critically low" and that government stocks cannot be released to the needy because of damages to the distribution system.

Ever since the ill-fated Iraqi invasion of Kuwait, Baghdad has been losing about $80 million a day in oil export revenues. In the first half of 1990, the country was producing approximately 3.1 million b/d, close to maximum sustainable capacity, and exporting 2.7 million b/d. After August, production slumped to 400,000 b/d, barely sufficient to feed local refineries.

US-Mideast Trade Down in 1990

US trade with the Near Eastern and North African Arab countries was headed for a banner year until the Iraqi invasion of Kuwait. If exports had continued at the rate of January-June 1990, the total for 1989, $12.2 billion, would easily have been exceeded. However, the 1990 total amounted to only $11.7 billion as a consequence of the loss of lucrative Iraqi and Kuwaiti markets. This occurred despite record-breaking American exports to Saudi Arabia, Algeria and Morocco and steady flows of goods and services to Egypt and the United Arab Emirates.

Primary export markets last year were: Saudi Arabia ($4 billion); United Arab Emirates ($998 million); Algeria ($948 million); and Iraq ($732 million).

Despite the poorer showing of US exports, imports of Arab goods (mainly oil) totaled $18.5 billion, a considerable increase over the 1989 figure of $14 billion. The larger Arab exporters were: Saudi Arabia ($10 billion); Iraq ($3 billion); Algeria ($2.7 billion); and the United Arab Emirates ($889 million).

John T Haldane served as a foreign service officer in Baghdad, Cairo and Beirut, and as an international economist in the departments of Commerce and Treasury.