Wracked in recent years by sectarian violence and economic collapse, Iraq has been enjoying a quiet resurgence this year even as its neighbors in the Middle East are striving to stave off economic meltdowns in the face of political unrest.
Iraq’s stock market surged nearly 25 percent in the first two months of the year, and a record $20 million of investment funds flooded into the country from the U.S., Europe and other Persian Gulf states, even as other Arab stock exchanges fell by a collective 15 percent.
Iraq’s economic renaissance began with little fanfare in December after the United Nations voted to recognize its newly formed government and lift long-standing sanctions against the country, said Kenneth Kuhn, president of Global Capital Investments, a Chicago investment firm that specializes in Iraqi stocks.
With some of the biggest untapped reserves of oil in the world, Iraq also is benefiting from the surge in oil prices to more than $100 a barrel on worries ignited by the Middle East unrest.
Despite an outbreak of street protests in February by Iraqis demanding better services and jobs, Mr. Kuhn said, the demonstrations were different from those in other countries because they were not aimed at unseating the democratically elected government.
Risks remain in the war-ravaged nation, Mr. Kuhn said, but he thinks Iraq is at the beginning of an economic revival that could make it a beacon of stability and prosperity after years of having the region’s most stricken and violence-wracked economy.
“It’s a market that’s at an historic bottom,” he said. “They’re not out of the woods yet by any means, but it could be like being in China and Brazil 20 years ago” for businesses and investors willing to go out on a limb and tap into Iraq’s potential growth.
Although memories of the years of war and violence linger, Iraq has several reasons for optimism, Mr. Kuhn said.
The U.S. and other Western powers, after spending hundreds of billions of dollars and sacrificing thousands of lives to liberate the country from dictator Saddam Hussein and establish a fledgling democracy, now want Iraq to succeed.
With violence down by 90 percent since 2007, the International Monetary Fund last month found that Iraq had achieved economic stability with declining inflation and projected that its economy would maintain superlative annual growth rates of more than 10 percent in coming years.
Fifty power plants are being constructed to meet Iraq’s soaring demand for electricity, and other major projects include a big sports complex in the southern city of Basra and a Disney World-like park in the northern city of Mosul.
Iraq’s citizens are war-weary and want to put aside the decades of turmoil and establish a peaceful and prosperous society, Mr. Kuhn said, contending that the cycle of insurgency and violence has essentially run its course.
Perhaps most important, Iraq with its oil wealth has the wherewithal to quickly reconstruct its economy and raise the standard of living.
Iraq has 143 billion barrels of proven conventional oil reserves — the second largest in the world — and its production of oil reached a postwar high of 3 million barrels a day in February.
But the biggest gains lie ahead. Iraq has only begun to work with major oil companies to unlock potentially billions more dollars in conventional oil reserves that Iraq’s oil minister says could enable the country to rival top oil producer Saudi Arabia with exports of 12 million barrels a day within a few years.
The U.S. Energy Information Administration is projecting a smaller increase in Iraqi production to 6 million barrels a day by 2015. But even that level would represent a doubling of the country’s current production and revenue.
Iraq’s potential to become an even bigger oil exporter as it ramps up its devastated oil sector is one reason the U.S. energy forecaster does not foresee a major worldwide crunch in oil supplies on the horizon.
Despite its significant assets, Iraq still faces severe problems and risks that could derail its nascent economic recovery. Outbreaks of violence, while much lower than during the war years, still recur at times along with occasional sabotage of the nation’s critical oil facilities.
The ruling government coalition of Prime Minister Nouri al-Maliki, which took a record nine months to form last year, remains fragile and could be sorely tested if violence and sectarian strife pick up next year after most U.S. troops are scheduled to depart.
Gala Riani, an analyst at IHS Global Insight, said the protests that broke out in February, which forced the resignation of several provincial governors viewed as corrupt, may still pose dangers for the al-Maliki government, which has promised to improve government services within 100 days.
“The challenge is that if protests continue, the government has few tricks up its sleeve that it could pull to placate anger, as many of the grievances expressed will take years to address,” she said.
“The government is newly formed; dissolving it is not a realistic option,” she said. “If the situation escalates, the government may fall apart over internal disagreements.”
But the surge in growth and investment has nevertheless sparked hope and optimism that these obstacles can be overcome.
David Hamod, president of the National U.S.-Arab Chamber of Commerce, said Iraq is on track to build more than $150 billion in infrastructure projects, and U.S. companies — which provide about a quarter of service exports to Iraq — stand to gain handsomely from the trend.
“Nowhere else in the Middle East and North Africa region do we see that level of exponential growth,” he said. “If the economy continues to grow at this pace, Iraq will become Americas fourth-largest market in the Arab world within three years.”
The chamber co-sponsored an Iraq development conference along with the U.S. Commerce Department and U.S. State Department in February that drew a standing-room-only crowd of U.S. and Iraqi businessmen.
Naufel Alhassan, an Iraqi Embassy official, said that Iraq’s goal is to create 3 million to 4.5 million jobs for its growing population and increase private-sector participation in the economy by 46 percent.
He said Iraq is still emerging from a controlled economy “run by dead dictatorships,” with high unemployment, heavy dependency on oil and a weak private sector. But he was optimistic about the road ahead.
“We foresee excellent opportunities for American companies — large, medium, and small — to create joint ventures with new Iraqi companies in all sectors,” he said.