Iraq’s Last Window: Diffusing the Risks of a Petro-State - Working Paper 266

Iraq’s oil industry has an opportunity to introduce an oil dividend based on expanding production. The predicted rise in revenues will allow the government to allocate a significant dividend that halves poverty, helps diversify the economy by creating demand at all income levels for goods and services, and stimulates capital formation—all without cutting into the government’s capital spending plans. In this working paper, Johnny West describes how such a dividend program could be structured by, for example, taking advantage of Iraq’s existing rationing system, ubiquitous mobile phone networks, and new biometric ID cards. A dividend, starting at $220 per capita in October 2012 and rising with expanded production, could also cement the affiliation of all citizens to Iraqi territorial integrity, act as a powerful disincentive to secession in oil-producing regions, and create popular pressure among all sections of the population to discourage acts by the ongoing insurgency which disrupt economic reconstruction. Support for an oil dividend policy is growing among some politicians, notably those seeking votes among the Iraqi poor such as the Sadrists and Fadhila party. International support could help the government structure a dividend which functions well and in the public interest.