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

Abstract

Effectively, the government of Iraq, not the Iraqi people, owns the oil wealth; the oil industry is a government monopoly. We make the case against such monopoly and for a competitive oil industry. We estimate the share of oil in real output to be relatively large, and show that most macroeconomic variables are highly associated with the price of oil. This oil dependence is consistent with the rentier economy. In addition, the elasticity of oil production with respect to global oil consumption is greater than one. Such monopolistic industry would not be suitable for the future in a zero carbon state of the world. We estimate the dynamics of real oil prices and quantity; human capital, the stock of capital, labor, and real GDP, and conduct stress tests by producing dynamic stochastic projections for the period from 2020 to 2050 under the baseline and two adverse counterfactual scenarios. Permanent income is higher under a competitive scenario than a monopolistic one. A quick transfer of ownership of oil to the Iraqi people should guarantee a competitive market economy, a functional democracy, and a better future for the Iraqis.