The formation of a government in October 2022, a year after elections were held, initiated a new stage in the evolution of Iraq’s investment climate. The Government of Iraq (GOI) continues to dominate Iraq’s economy, with oil exports serving as the basis of Iraq’s GDP. Prime Minister Mohammed Shiaa al-Sudani has stressed his government’s openness to doing business with U.S. and other Western firms and has taken some positive steps in that regard. Nevertheless, the Iraqi bureaucracy, legal and regulatory obstacles, and corruption—investment climate features that persist despite changes in government leadership—pose many obstacles to doing business in Iraq. Additionally, officials who favor commercial relations with Iranian, Chinese, or other non-Western companies or governments are found in positions of authority throughout the GOI.
The security environment, including the threat of resurgent extremist groups, remains an investment impediment in many parts of the country. Many militia groups that participated in the fight against ISIS remain deployed and are only under nominal government control. Militia groups have been implicated in a range of criminal and illicit activities, including extortion, in commercial sectors.
Investors in Iraq face challenges resolving contract disputes and receiving timely payments from Iraqi partners, including GOI entities. Difficulties with corruption, business registration, customs regulations, irregular and high tax liabilities, unclear visa and residency permit procedures, arbitrary application of regulations, lack of alternative dispute resolution mechanisms, electricity shortages, and lack of access to financing remain common complaints for local and foreign companies operating in Iraq. Shifting and unevenly enforced regulations that often change with each new government create additional burdens for investors.
Despite these challenges, the Iraqi market offers potential for U.S. exporters. Iraq regularly imports rice, wheat, and other agricultural commodities, as well as machinery, consumer goods, and defense articles. Iraq imported $949.9 million in goods from the United States in 2022. Government contracts and tenders are the source of most commercial opportunities in Iraq in all sectors, including the significant oil and gas contracts, and have been financed almost entirely by oil revenues. Increasingly, the GOI has asked investors and suppliers to provide financing solutions and allow for deferred payments.
Water scarcity and management challenges are significant concerns, and the salinization of water and soils, desertification, and the disappearance of arable land are existential environmental concerns connected to poor resource management and climate change. These challenges also represent economic opportunities in Iraq, which needs investments in green and renewable energy, modern irrigation systems, and the infrastructure to capture flared gas.
In part because of the Russia-Ukraine war, Iraq has sold oil at a stable price of over $70 per barrel for the past year. The supply shock provoked by the blockade of Ukrainian exports, coupled with record price levels for basic commodities, caused several nations to adopt export restrictions, fueling market shocks and speculative operations and leading to unpredictability in global food supply. Those shocks have affected Iraq’s economy, including by increasing inflation of basic consumer goods.
Iraq’s oil industry needs investment to maintain production. The GOI has not made significant investments in the oil and gas sector in much of Iraq for over 30 years. There are immediate opportunities to improve Iraq’s electricity sector and to supply sufficient natural gas to power plants to meet the ever-growing demand for power. Iraq has the potential to become energy independent if it follows this path. In the Iraqi Kurdistan Region (IKR), tensions with the central government in Baghdad put development of the hydrocarbons sector at risk. Resolution of those issues would open significant opportunities for additional investment, especially with respect to extensive gas deposits.
Higher oil prices have supported Iraq’s economic recovery, but the recovery of Iraq’s oil-dependent economy remains vulnerable to shocks from market volatility. Inflation hovered around five percent throughout most of 2022.
While investors in the semi-autonomous IKR face many of the same challenges as investors elsewhere in Iraq, the IKR’s more stable security situation, investment-friendly legal framework, and relative openness have historically resulted in a more permissive investment environment for U.S. firms and franchises. However, ongoing disputes with the central government over revenue sharing and the hydrocarbons sector, tensions between the IKR’s main political factions, domination of the economy by politically powerful families, and significant payment arrears to foreign companies on public contracts are all causes for concern. IKR oil, which in recent years the Kurdistan Regional Government (KRG) has exported via the Iraq-Turkey Pipeline (ITP) independent of GOI oversight, typically sells at below prevailing market prices, due to uncertainty relating to the legality of these sales. On March 24, the International Chamber of Commerce International Court of Arbitration (ICC ICA) issued a decision declaring Turkey’s facilitation of independent KRG oil exports to have violated an Iraq-Turkey treaty, resulting in suspension of exports via the ITP. On April 3, the GOI and KRG signed a temporary deal to restart oil exports through the ITP. The IKR-based American Chamber of Commerce – Kurdistan is growing and developing its capacity to advocate for improvements to KRG business processes and transparency.
Trade data resources in addition to Table 1 Key Business Metrics and Rankings include: