The impact of oil prices on Iraq’s economy is profound, given the country’s heavy reliance on oil revenues. Over the last decade, oil revenues have accounted for more than 99% of exports, 85% of the government’s budget, and 42% of gross domestic product (GDP). This excessive dependence on oil exposes the country to macroeconomic volatility, while budget rigidities restrict fiscal space and any opportunity for countercyclical policy. The recent economic recovery has been largely driven by the oil sector, with oil GDP accounting for 61 percent of real GDP in 2022. However, growth constraints in the oil sector have reemerged, and the recent and pronounced dip in global oil prices to US$71/bbl in May 2023 has raised concerns about Iraq’s economic outlook in the medium term.
The vulnerability of Iraq’s economy to oil price shocks has been a longstanding concern. Without reforms to reduce public sector dominance and increase non-oil growth potential, the country remains highly vulnerable to oil shocks, inflationary pressures, heightened climate change impacts, and further commodity price volatility. The recent economic recovery has been largely driven by the oil sector, with oil GDP accounting for 61 percent of real GDP in 2022. However, growth constraints in the oil sector have reemerged, and the recent and pronounced dip in global oil prices to US$71/bbl in May 2023 has raised concerns about Iraq’s economic outlook in the medium term.
The recent and pronounced dip in global oil prices to US$71/bbl in May 2023 has raised concerns about Iraq’s economic outlook in the medium term. The highly pro-cyclical budget could lead to a rapid depletion of the recent oil windfall, especially given the recent and pronounced dip in global oil prices. The recent and pronounced dip in global oil prices to US$71/bbl in May 2023 has raised concerns about Iraq’s economic outlook in the medium term. The vulnerability of Iraq’s economy to oil price shocks has been a longstanding concern, and the recent dip in global oil prices has highlighted the need for the country to reduce its dependence on oil and diversify its economy.
The impact of oil prices on Iraq’s economy is significant, given the country’s heavy reliance on oil revenues. The recent dip in global oil prices has raised concerns about the country’s economic outlook in the medium term, highlighting the need for Iraq to reduce its dependence on oil and diversify its economy. Without reforms to reduce public sector dominance and increase non-oil growth potential, the country remains highly vulnerable to oil shocks, inflationary pressures, heightened climate change impacts, and further commodity price volatility.
