887.2553/10–1151: Despatch
The Ambassador in Iraq ( Crocker ) to the Department of State 1
No. 349
1. Summary and Introductory Comment.
This Despatch will briefly examine the effects on the Iraqi national economy which may be expected to result from the proposed oil concessions agreement between Iraq and the oil-producing companies (Iraq Petroleum Co., Mosul Petroleum Co., and Basra Petroleum Co.) and to assign approximate magnitudes to the resultant impacts. No attempt is made here to indulge in close economic analysis; time limitations preclude this and the purposes of the Despatch do not require it. Approximations are sufficient to highlight the far-reaching implications of the benefits to be derived by Iraq under the new agreement. Moreover, the Despatch is intended to suggest the general direction and nature of the effects of the new agreement rather than to precisely measure them.
The terms of the agreement, when ratified by Iraq’s Parliament, will be retroactive to January 1, 1951. Under the agreement, there will occur a substantial increase in oil production and in oil revenues to the Iraq Government. Both increases will exert attenuated subsidiary effects in addition to the direct impact on the Iraqi economy caused by their own sizeable contributions.
The oil revenues will place Iraq for the foreseeable future in a comfortable net creditor position on balance of international payments account. While means of financing developmental projects will no longer be a problem, the inflationary impact of the greatly increased governmental revenue will create a series of complex financial difficulties [Page 553] with which Iraq is not well prepared to cope. Considerable economic, social and political readjustments are anticipated over the long-term, an obviously painful process fraught with dangers for stability in the area.
[Here follow two sections covering the direct and indirect impacts of the increases in oil production and revenue rate on the Iraqi national economy.]
4. Net Effect.
From the foregoing, several broad conclusions having policy implications may be drawn. Some of these have already been discussed in previous despatches; others will be developed further in future despatches.
- a)
- Oil is predominantly the mainstay of Iraqi economy and the hope of future development to make the economy viable before the oil resource is depleted.
- b)
- Contrary to the usual bankruptcy of backward areas, Iraq has more revenue in sight than projects upon which to spend it.
- c)
- Iraq sorely needs technical assistance, both in personnel and goods.
- d)
- Iraq is faced with a monumental developmental task with only a modicum of helpful institutional aids; thus truly staggering socioeconomic problems (such as inflation and shifts in emphasis on economic groups) arising out of the coming tremendous expansion of economic activity are complicated by the scarcity of executive personnel and the out-moded social-political-economic traditions and customs.
[Here follows a listing of recent despatches concerning the oil agreement, the Technical Assistance and Development Board (see despatch 466, November 10, page 554), and the economic life of Jews and others in Iraq.]
- Repeated to London, Tehran, Amman, Basra, Beirut, Benghazi, Damascus, Jidda, Jerusalem, Tel Aviv, and Tripoli.↩