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Iraq’s Problem Is Economic, not Security

Many Americans shy away from Iraq because of security concerns, and certainly last month’s bloodshed has shaken confidence both inside and outside Iraq. Through all the violence—war, insurgency, and terrorism—Iraqis have been resilient, a trait which probably surprises only those who formed their political opinion about Iraq without ever talking to Iraqis. The security problems must be overcome—and Prime Minister Maliki is probably correct to fight them head-on rather than to appease those who would seek to win through violence what they cannot at the ballot box. Rather than allow any politician to walk away from terror support out of fear of sparking sectarian tension, the Iraqi government should instead enforce its standard universally and let no one off the hook. More systemic problems loom, however.

The decision to liberate Iraq was certainly wise, although the decision to occupy the country (as I stated before I entered government in this interview with the American Enterprise) was not. That said, once the decision to occupy was taken, it becomes essential to achieve the best possible outcome rather than refighting policy battles lost. Still, for all the years of occupation, the hundreds of billions of dollars in continued security and grandiose aid and development schemes, the United States really could count only two additional successes: First was modernizing Iraq’s old currency and second was reviving Iraq’s oil trade.

It is that oil trade which now threatens Iraq’s long-term health. Iraqi government officials privately acknowledge that every ministry could function with one-tenth of the staff. Most young Iraqi college graduates, however, aspire to a safe government post rather than take a chance in the private sector. Entrepreneurship is still frowned upon in many families. The result is that the majority of Iraq’s oil income goes to salaries, but not to basic infrastructure. Many Iraqis are content enough and willing to overlook Iraq’s problems so long as they have a nice house, a car, satellite television, a cell phone, a generator to make up the short-fall in electricity, and basic financial security.

The Iraqi government—unlike its Iranian counterpart—has been able to make payroll, and will continue to do so as long as oil prices remain high. Inside the Middle East rulers might hope that $100 oil is the new normal but if history is any guide, what goes up also comes down. If the price of oil ever drops precipitously—as it did, for example, in the late 1990s—then Iraq may pay the price for its failure to reform its economy and better encourage both domestic entrepreneurship and direct foreign investment.

Nor should those who regularly sing Iraqi Kurdistan’s praises believe that the Kurdish region will be immune from such consequences. The flash and the affluence upon which visitors to Kurdistan regularly remark are the hallmarks of a bubble, not a healthy economy. Real estate has boomed, but many of the apartment buildings and office buildings remain empty. Politicians, if asked, will acknowledge that Kurdish investors will pour money into real estate because there are few other outlets for their cash. Local banks are not trusted, and business still depends on political connections. Beyond oil, there has not been any significant industrial development. Rather than manufacture goods themselves, Kurds in the north and Arabs in the south continue to pour money into imports of Iranian and Turkish consumer goods.

Once again, however, a stable Iraq may be in U.S. interests, but the desire of both Democrats and Republicans to divorce themselves from Iraq is strategically shortsighted and deliberately undercuts a relationship which is America’s for the asking.



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