The scale of economic sanctions against Iraq is probably unprecedented in recent history. The imposition of sanctions can be regarded as a macroeconomic shock of massive proportions. Although the sanctions regime has allowed for an easing of the restrictions on the importation of foodstuffs and medical supplies, the availability of these essential supplies, among other things, continues to fall far short of the requirements of the civilian population.
The main source of this shortfall lies in the inability of Iraq to pay for imports. The Iraqi economy has been denied of the revenue from its most valuable asset: petroleum. The effect of the ban on Iraqi exports is the same as the effect of a quantitative restriction on the importation of food or medicines, and in this sense, the allowances in the sanctions regime for 'humanitarian' imports are somewhat illusory.
Iraq had relied heavily on oil revenues in the past, and its economy had developed around the surpluses generated by oil exports. As such Iraq was particularly vulnerable to an oil embargo. The mechanisms through which the oil embargo affected the economy were two-fold: firstly it reduced dramatically the revenues available to the government, and secondly, it led to a dramatic reduction in the value of the Iraqi currency.
The impact on earnings and livelihoods has been disastrous. Real earnings fell by around 90 per cent in the first year of the sanctions, and then fell by around 40 per cent more between 1991 and 1996. There has been a steady shift of people into casual labour. Wages in this form of employment are now much lower in Iraq than wages for casual workers in some of the poorest parts of the world. Qualitative observations on the type of survival strategies that Iraqis are resorting to confirms this impression that in many ways Iraq is now very much like some of the poorest countries in the world, whereas before the sanctions it could be placed on par with the upper Middle Income countries.
The government has responded in a number of ways to the economic crisis brought on by the sanctions. There has been a policy of generating some revenues through seignorage or by the way of printing money. This process, as predicted by economic theory has its limitations, and it appears that these were reached some time in late 1995. Overall, under the circumstances, the management of the macroeconomy has been effective.
Arguably the most significant achievement of the government in response to the sanctions has been the establishment of a ration system. This appears to be efficient and equitable. It would be fair to say that the ration system in tandem with the grain procurement system is what has prevented the onset of mass starvation and famine in Iraq. The human and economic cost of the sanctions has, indeed, been enormous, and it has largely been borne by the civilian population of Iraq. There can be no question of seeking justification for policy-induced human suffering of this magnitude. It is nevertheless imperative to determine what the ultimate objectives of this policy were, and whether, and to what extent, those objectives have been attained.