Columbia International Affairs Online: Working Papers

CIAO DATE: 10/2011

Iraq's Last Window: Diffusing the Risks of a Petro-State

Johnny West

September 2011

Center for Global Development


Although Iraq’s oil industry is 80 years old, it has an opportunity to introduce an oil dividend based on the expansion of production currently being undertaken. Even assuming a conservative price for crude, the resulting predicted rise in revenues will allow the government to allocate a significant dividend which halves poverty, helps diversify the economy by creating demand at all income levels for goods and services, and stimulates capital formation—all without cutting into the government’s capital spending plans. A dividend, starting at $220 per capita in October 2012 and rising with expanded production, could also cement the affiliation of all citizens to Iraqi territorial integrity, act as a powerful disincentive to secession in oil-producing regions, and create popular pressure among all sections of the population to discourage acts by the ongoing insurgency which disrupt economic reconstruction. Logistically, dividends could be mapped onto the nationwide and universal rationing system, as the electoral roll has been, and combined with Iraq’s ubiquitous mobile phone networks and new biometric ID cards. A partial dividend would create a strong domestic political constituency for transparency to reinforce international technical efforts to help the government manage oil revenues and create efficient management structures. It would also help Iraq develop an alternative economic model to a future, which the country’s present trajectory now threatens, of a bloated state as the country’s only significant employer, with all the attendant problems of patronage networks, politicization of the civil service, and outright corruption. Support for an oil dividend policy is growing among some politicians, notably those seeking votes among the Iraqi poor such as the Sadrists and Fadhila party. International support could help the government structure a dividend which functions well and in the public interest.