Investors and policymakers once feared that when U.S. combat troops withdrew from Iraq, the country would crash and burn. Instead, over the next several years, a surge in oil revenue and the need to rebuild will make Iraq one of the world’s most attractive investment destinations.
What a difference four years makes. My only vivid memory of the Arab Strategy Forum in Dubai in December 2006 is the incredulity and outrage of Arab officials who had just read the Baker-Hamilton report. That document, authored by two of America’s foremost champions of bipartisan foreign policy, essentially urged President George W. Bush to cut America’s losses in Iraq. During the conference, I heard every variation of “You broke it, you fix it.” The anger was understandable. At the time, Arab states faced a possible explosion of sectarian war in Iraq, with aftershocks inside their own countries.
By January of this year, Saudi officials … were looking for investment opportunities in Iraq and even fretting that the country could one day soon produce enough oil to challenge the Saudi role as sole source of spare global capacity.
By January of this year, Saudi officials I spoke with during the Global Competitiveness Forum in Riyadh were looking for investment opportunities in Iraq and even fretting that the country could one day soon produce enough oil to challenge the Saudi role as sole source of spare global capacity—the amount of extra available oil that can be produced on relatively short notice. Iraq now produces about 2.4 million barrels per day. Given the dozen or so contracts signed recently with heavyweight foreign oil companies, there’s good reason to believe that Iraq can produce three times that amount within the next decade, rivaling the Saudis’ 8.5 million barrels per day.
Foreign multinationals will play a big role in this new production. Even as BP struggles to repair its reputation in the U.S. following the Gulf oil disaster, the company has partnered with state-owned China National Petroleum Corporation to develop Rumaila in southern Iraq, one of the world’s largest oil fields.
That progress will provide federal and local Iraqi authorities with the revenue needed to build new roads, bridges, airports, schools, and homes; about 95 percent of the Iraqi government’s money comes from oil. They will spend on the infrastructure needed to provide millions of Iraqis with the reliable supplies of food, water, electricity and sanitation services they don’t yet have. This spending and construction will provide more Iraqis with new jobs and more money to spend. As David Brooks pointed out in a recent column, unemployment has already fallen sharply—though it’s still at 15 percent—and GDP is expected to grow by about 7 percent next year. Iraq already ranks No. 12 on the list of the world’s fastest-growing economies.
There are other promising signs. According to data provided by the Brookings Institution (and also cited by Brooks), an estimated 4,500 Iraqis had Internet service in September 2003. More than 1.6 million have it now. As late as March 2007, just 26 percent of Iraqis said they felt “very safe” in their neighborhoods. By February 2009, the number had jumped to 59 percent.
To be sure, Iraq still has plenty of political problems, beginning with the fact that, months after parliamentary elections, the country still has no new government. Also, the country still has no oil law to provide for an equitable division of revenue among Iraq’s various factions, to build a durable legal framework for foreign investment, and to resolve disputes between Baghdad and the Kurdish Regional Government over the latter’s right to award oil-production contracts. There is still no agreement on the holding of a referendum, required by Iraq’s constitution, to permanently settle differences over the political status of the oil-rich city of Kirkuk.
Militant groups will also continue to target oil pipelines, refineries and even oil ministry officials, but all of the country’s political factions know that, for the moment, oil revenue is the country’s lifeblood. Iraqi security forces appear well prepared to contain most of the damage.
Investors in Iraq’s future will continue to contend with the corruption and official incompetence that have become part of the cost of doing business in many emerging markets. But the country’s middle class, manipulated by decades of political patronage and decimated by international sanctions, is looking toward better times ahead. They will fuel Iraq’s slow revival and ensure that the costs of political implosion are simply too high to contemplate.
Correction: The article originally stated that Saudi Arabia produces 10.8 million barrels of oil per day. The correct figure is 8.5 million barrels of oil per day.
Ian Bremmer is the president of Eurasia Group and author of The End of the Free Market: Who Wins the War Between States and Corporations? (Portfolio, 2010)