What Is Iraq’s GDP and What Factors Influence It?

Gross Domestic Product (GDP) represents the total monetary value of all finished goods and services produced within a country’s borders during a specific time period. It offers a comprehensive snapshot of a nation’s economic activity and productivity. This article explores Iraq’s GDP, examining its primary components and the various factors that shape its economic output.

What is Gross Domestic Product (GDP)

Gross Domestic Product (GDP) measures the monetary value of all final goods and services produced within a country’s geographical boundaries during a specified period, typically a quarter or a year. It functions as a primary gauge of economic health and size, allowing for comparisons of economic performance over time or between different nations. GDP accounts for the total output generated by labor and property located within a country.

Economists commonly employ three primary approaches to calculate GDP. The expenditure approach sums consumption, investment, government spending, and net exports. The income approach aggregates all income earned from production, including wages, profits, rents, and interest. The production, or output, approach calculates the total value of all goods and services produced, subtracting the cost of intermediate inputs.

GDP provides a standardized metric for international economic analysis and policy formulation. It allows policymakers to assess economic growth, identify periods of recession or expansion, and formulate strategies. While a high GDP generally indicates a robust economy, its composition and wealth distribution are also important considerations for a complete economic picture.

Key Components of Iraq’s GDP

Iraq’s economy is profoundly shaped by its vast hydrocarbon resources, with the oil sector serving as the dominant component of its Gross Domestic Product. Oil revenues accounted for 89% of Iraq’s foreign exchange earnings in 2024. The World Bank notes that oil revenues have constituted over 42% of Iraq’s GDP over the last decade.

While oil holds a significant share, other sectors also contribute to the nation’s economic output. In 2023, the services sector contributed approximately 42.3% to Iraq’s GDP, while agriculture accounted for about 2.8%. The industrial sector, including non-oil industries, was estimated at 55.6% in 2023, though much of this manufacturing remains closely tied to the oil industry. Iraq’s nominal GDP was projected at $258.020 billion for 2025, with a projected growth rate of 4.1%, rebounding from a 0.1% estimated growth in 2024 and a -2.9% contraction in 2023.

The government is working to bolster non-oil revenues, with an aim to increase their share of the federal budget to 20% in the coming years, up from 14%. This diversification effort seeks to expand productive activities in areas such as transportation, digital communication technology, housing, construction, and agriculture. These initiatives foster more balanced and sustainable economic growth, reducing the country’s heavy reliance on a single commodity.

Factors Influencing Iraq’s Economic Output

Iraq’s economic output is significantly influenced by global oil prices and production levels, given its substantial reliance on oil exports for national income. Fluctuations in international oil prices directly impact government revenues and the economic landscape, underscoring the vulnerability of Iraq’s budget to market volatility. For instance, a one-dollar drop in oil prices can lead to a loss of $3.2 to $3.4 million per day, considering Iraq’s export volume of roughly 3.2 to 3.4 million barrels per day.

Geopolitical stability and domestic security play a significant role in shaping Iraq’s economic trajectory. Conflict and instability have historically hindered economic development, deterred foreign investment, and damaged infrastructure. An improved security environment, with reduced large-scale terrorist operations and increased political stability, has begun to attract foreign capital, particularly in energy, construction, and retail sectors.

Infrastructure development is another key determinant of Iraq’s economic potential. Outdated transportation systems, frequent power shortages, and inadequate public services impede industrial development and economic growth. Significant projects, such as the Grand Faw Port and the Development Road, aim to modernize the country’s infrastructure, facilitate trade, and create new revenue streams, attracting international investment.

Government policies and efforts towards economic diversification are shaping Iraq’s future economic output. Initiatives to streamline investment procedures, reduce bureaucracy, and promote public-private partnerships are underway to attract $250 billion in investments across various sectors over the next two years. These policies, alongside reforms in tax and customs collection, seek to enhance non-oil GDP growth and build a more resilient economy.