Bartle Bull, founder of an Iraq-focused investment bank called Northern Gulf Partners, is clearly making a big bet on Iraq’s economic future, and he makes the case that it is very bright indeed in today’s Wall Street Journal:
Iraq last year signed 12 oil contracts that promise to take output from under two million barrels per day currently—less than Algeria—to over 12 million by 2016. This timeline is probably optimistic, but the contracts will likely see Iraq surpass Saudi Arabia’s 10 million to 11 million barrels per day within a decade. And these figures include no contributions from Iraqi Kurdistan, from natural gas reserves, or from new oil fields, with which the lightly-explored country is replete.
The Saudi comparison suggests that as Iraq’s oil production rises, its economy could grow approximately six-fold over the coming decade—gross domestic product is currently $66 billion—and add a mind-boggling $300 billion in annual GDP. This means one of the largest economic reconstruction and development booms in history.
All of that strikes me as at least somewhat plausible: it is clear that Iraq has lots of hydrocarbons. What I find less likely is the following:
There is strong evidence that Iraq can avoid much of the “oil curse” and build a more cosmopolitan and modern economy than those of its autocratic neighbors. In the last election, senior Iraqi leaders campaigned on, among other things, establishing individual oil accounts for Iraq citizens to receive their share of the nation’s wealth directly. Unique among the region’s resource economies, this would put the state at the mercy of the people, not the other way around.
Part of what makes me nervous is the prospect that the combination of rising oil wealth and ethnic and sectarian tensions could fuel conflict for decades. Or perhaps it will create strong incentives for cooperation across these divides, particularly if, as Bull suggests, Iraq develops a system of individual oil accounts and a transparent process for managing private sector involvement in the extractive industries. Of course, individual oil accounts could undermine work incentives in a variety of ways, but it’s certainly preferable to leaving vast sums at the discretion of politicians.
So could it be that oil-rich Iraqis will come to America’s rescue in the face of a Sino-Canadian-Floridian invasion — this is after a bionic Charlie Crist leads Florida out of the union to become a bellicose socialist republic, with a flamingo and an AK-47 emblazoned across its flag — come 2050? Only time will tell. I’m kind of skeptical.