The Ownership of Oil, Democracy, and Iraq’s Past, Present, and Future

Abstract

We show that the share of oil in real output is relatively large, nearly 60 percent. Effectively, the government of Iraq– not the people – owns and manages the oil wealth. This dependence on oil as the main income is also consistent with the rentier economy and the Resource Curse phenomenon. The interest elasticity of oil production with respect to global oil consumption is greater than one. This high dependence on oil as income and the sensitivity of oil production to global oil consumption would not be sustainable in the future, where there is a growing global aversion to hydrocarbon production and consumption. The developed countries aim at zero carbon by 2050. We show that the expected decline in global consumption of oil has an adverse effect on the Iraqi economy. We provide stress tests and produce dynamic stochastic projections from 2020-2050 under a number of adverse scenarios. A quick transfer of ownership of oil to the Iraqi people should guarantee a functional democracy and a better future for the Iraqis.