Missed the first part of our feature? Read: Iraq: Mixed Opportunities, Messy Outlook? (Part I: The Road To Entrapment)

In 2003, an overly jubilant Paul Bremmer, the US administer of Iraq, proudly declared that Iraq “was now open for business”. Thirteen years of crippling sanctions – leading to soaring unemployment, the virtual disappearance of the middle classes and an unprecedented rise in the percentage of population living under the poverty line – had left Iraq with a severely battered economy, and the fall of the Ba’thist regime was supposed to promise a brighter outlook for the Iraqi people.

But a year later, Iraq found themselves under a façade of an international governing body called the Coalition Provisional Authority (CPA), which was effectively being run by the US. The American administrators pushed hard to liberalize the economy at the beginning; but they did this without any consideration to the prerequisites for such a dramatic move – especially coming from a situation whereby the state had been imposing a tight grip on private activities.

The US authorities’ stated motives behind the liberalization strategy – to allow market mechanisms to induce efficiency, to inject Iraqi private resources, and to raise the private sector’s share in the economy – were also compromised as they used Iraqi oil revenue to fund US firms and withheld financial resources from the Iraqi authorities. According to a study published by Open Society Institute's Iraq Revenue Watch, the CPA had awarded US firms with 74 percent of nearly $1.5 billion in contracts paid for with Iraqi funds, while Iraqi firms received just 2 percent of the value.

In addition, no legal framework to enforce the rule of law was established; with no stock exchanges functioning properly, no laws enforcing transparent bidding and acquiring or buying privatized assets promulgated, and no property, investment or tax regulations to ensure the gradual transition to a market economy.

What The CPA did do was try to create a commission of integrity in order to monitor, report and bring corrupt individuals to courts. But given the dysfunctional justice system, the dominance of the militias and the government’s heavy hand due to its control of the oil revenues, this commission (as well as the justice system) was a toothless body with diluted authority.

Not Quite A Dreamland

The country, as most would expect, had been, and still was, struggling to attract investors. While most investors had optimistic views of the future, they faced formidable obstacles that made them hesitate to enter that promising market. This is hardly surprising as the World Bank ranks Iraq 164 out of 183 countries in terms of ease of doing business – down five spots from last year – while Transparency International ranked it as the seventh most corrupt country in the world in 2011 – four grades up from 2010.

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Furthermore, despite the World Bank’s condition that Iraqi authorities had to bring down inflation rates and put an end to the government subsidies for basic goods in exchange for cancelling 80 percent of Iraq’s debts, implementing the two tasks was impossible. Not only did the Iraqi government had to act swiftly to raise the salaries for medium level employees, which had dwindled to no more than $2 a month, they had to try and alleviate the suffering of the vast majority of the population as well – many of whom were facing extreme levels of poverty thanks to years of tyranny, wars and sanctions. Monthly incomes for Iraqis were raised by around 500 hundred folds, and the rush by Iraqis to satisfy their long awaited needs for durable goods led to spiraling rates of inflation. In 2006, the index of inflation was 132.3 percent – rising by almost 52.5 percent in one month during the same year.

But the Iraqis still had one trump card: its oil sector. Since 2008, the Iraqi government has been issuing bids for international oil companies to invest in its oil and gas fields; with the pre-condition that these companies work more as service providers, rather than taking a share of oil production. On January 18^th this year, the Iraqi oil minister also declared that the country had finished the first phase of its crude oil export capacity expansion project – a plan that would add five loading berths, each with 850,000 b/d of handling capacity, to Iraq’s southern export system; in what is the first expansion of Iraq’s export capacity for decades.

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Consequently, the country’s oil export level managed to grow to 2.37 million barrels per day – a figure close to its prewar level of 2.58 million b/d – even in the face of terrorist attacks on its oil production, transport and refining facilities. By the end of 2012, Iraq would have added a further 400,000-500,000 b/d to its oil exports figure; while the country also believe that a massive increase in its oil production capacity over the next six years, to as much as 13.5 million b/d, is possible after Baghdad signed twelve technical services contracts for field development with some of the world’s largest oil companies.  Accordingly, the World Bank estimates that Iraq’s oil sector could contribute up to 12 percent towards the growth of Iraq’s GDP in 2012 – a figure that is likely to contribute to a 16 percent growth rate for the entire economy.

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Yet, some Iraqis remained doubtful. The political quagmire in the country, they say, could still threaten to bring the potential growth to a halt or even set it back.