Iraqi defense minister blames economic troubles on oil

Ali Allawi, a former Iraqi minister of trade, defense and finance, said that the mere presence of oil is one of the fundamental causes of the current economic crisis in Iraq in a lecture yesterday afternoon.

“Iraq is cursed,” he said to an audience of students and community members in Aaron Burr Hall.

Allawi began the talk, entitled “Iraq: Economic Development and the Oil Curse,” by stating that ever since the discovery of oil in the Middle East, oil has poisoned Iraqi politics, dragged the rest of the world into the country’s internal affairs and created a disastrous economic experience, making it the most oil-dependent state in the world.

Allawi served as both minister of trade and as minister of defense for the Iraqi Governing Council from 2003 to 2004, and was then appointed minister of finance in the Iraqi Transitional Government between 2005 and 2006.  

Within hours of learning of the Sept. 11, 2001 attacks, Allawi predicted that the Americans would overthrow the Taliban, begin a “war” on radical Islam and get rid of Saddam Hussein.

After his predictions came true, his hopes for a democratic, stable Iraq were dashed. He attributed the failure to the “incoherence of the American ‘project’ and the incompetence of the new Iraqi political order.”

He blamed oil for the disastrous political performance of the current government and said that oil has “distorted the growth of the economy and the concentration of power and wealth in the capital city and disrupted the capabilities of the state.”

Iraq’s economy is driven mainly by the public oil sector, Allawi said, and the volatile price of oil renders the long-term source of revenue unstable and unpredictable, leading to “poor governance and bloated bureaucracies.”

Allawi explained that the Iraqi government’s preoccupation with the oil sector leaves little room for other employment. “The government has lost interest in export and in the growth of agriculture,” he said. “Manufacturing in Iraq is dead.”

Audience member Gregor Schubert ’11 said, “It is really fascinating that a state like Iraq that is thought of as a poor state can provide such an extensive food-provision program to the people despite their financial and political worries.”

Allawi proposed a plan that would allocate 25 percent of the oil revenue directly to the people of Iraq and another 25 percent to a development fund that would go toward investment, reconstruction budgets and infrastructure.

He also advocated for the reduction of the government’s control over the economy, the expansion of national banking and credit, an increase of public interest in the oil-production sector and the establishment of a national identification program that would include a census.

Allawi was born in Baghdad but spent most of his life in exile, opposing Saddam Hussein’s  Ba’athist regime. After residing in the United Kingdom, Allawi graduated from MIT and received an MBA from Harvard Business School.

Allawi worked for the World Bank and then co-founded the Arab International Finance merchant bank and later founded the FISA Group, a manager of hedge funds. Until 2002, he was a senior associate at St. Antony’s College, Oxford.