The Iraqi modern economy has basically been based on oil and most of the few large manufacturing industries are petrolium-based.
Four major factors affected the Iraqi economy since 1980. First, there was the war with Iran for most of the 1980's. Second, the international oil oversupply in the 1980s and 1990s also had its impact on the Iraqi economy. Third, Iraq has been subjected UN economic sanctions following its invasion of Kuwait in 1990 and the Gulf War in. Fourth, the Iraqi economy has also been affected by the destruction of the country's basic infrastructure and its financial bankruptcy.
According to economic studies carried out in the late nineties, Iraq's real gross domestic product (GDP), i.e. Iraq's GDP adjusted for inflation, fell by 75 percent during 1991-1999. The results of these studies showed that Iraq's GDP in the late 1990's was estimated at approximately the country's real GDP in the 1940's, before the oil boom the process of the modernization of Iraq. The per capita income and the peoples' calorie intake decreased to a level as low as that of one of the desperately poor so called "Fourth World" states such as the Democratic Republic of Congo, Rwanda Haiti and Somalia.
Other Economic studies and reports showed that almost all aspects of the Iraqi economy have been severely devastated since the end of the Gulf War in 1991. Its basic social and economic infrastructure as well as its valuable assets have been either eroded or irrecoverably destroyed. Iraq's educated elite and highly qualified cadres have fled the county; the value of the national currency, the Iraqi dinar, has been in constant and continuous decline. Inflation, which was 1000% in 1993, has been skyrocketing due to the government printing money to finance its spending commitments by printing money.
The UN sanctions imposed on Iraq created skyrocketing inflation, widespread unemployment and severe shortages of commodities that Iraq used to import such as medical equipment, medicine, farm machinery, animal vaccines, supplies used in purifying water and equipment used in generating electricity. The rate of disease and malnutrition rose sharply due to the shortages in question as well as the damage done to systems of water and sewage treatment during the war. In a move marking Iraq's first step away from the economic and diplomatic isolation, since its invasion of Kuwait, the UN began in 1996 to allow Iraq to sell oil for food and medical supplies.
However, the UN "Oil for Food Programme" could not solve the fundamental problems of Iraq's devastated economy and of the Iraqi people, who are impoverished by two wars and about a almost a decade of economic sanctions. The situation was getting worse by draining Iraq's official foreign reserves, which were estimated at an amount between $35 and $40 billion dollars, on financing the war with Iran. Moreover, Iraq was facing mounting foreign debt, preparation of war and other financial obligations that were enough to keep it in an economic crisis for tens of years to come.