By: Shatha kalel
Iraq, a country blessed with some of the world’s richest oil reserves, has faced a turbulent history marked by conflict, instability, and economic dependency on fluctuating oil revenues. But what if Iraq had followed a path similar to Norway’s, establishing a sovereign wealth fund in 2003 to ensure long-term financial stability, protect future generations, and create a diversified economy? Would Iraq be in a better economic position today?
The Norwegian Sovereign Fund, also known as the Government Pension Fund Global (GPFG), has been a key pillar of Norway’s success. Established in 1990, the fund was created to manage surplus oil revenues and prepare for a future when oil may no longer be a reliable economic resource. As of 2024, the Norwegian fund has grown to an astounding $1.75 trillion, generating impressive annual returns—$222 billion in 2024 alone. The fund’s investments span global equities (71%), fixed income (26%), real estate (1.8%), and a small but growing share in clean energy.
The fund has become a model of sustainability and prudence, offering insights into how countries rich in natural resources can avoid the “resource curse” and achieve long-term economic prosperity. If Iraq had implemented a similar sovereign wealth fund strategy, the implications for its society, economy, and revenues could have been profound. Let’s break down the potential effects.
1. Economic Stability and Diversification
Iraq’s economy has long been heavily dependent on oil revenues. This reliance makes the country vulnerable to fluctuations in global oil prices, which can be volatile and subject to geopolitical tensions. By establishing a sovereign fund, Iraq could have reduced its dependence on the whims of oil markets.
Norway’s model of investing surplus revenues in global assets—diversified across industries, countries, and sectors—allowed the country to weather economic storms with relative ease. Similarly, Iraq could have used a sovereign fund to create a buffer against global oil price swings, while also investing in sectors like technology, infrastructure, and green energy, creating a more diversified and resilient economy.
With a large sovereign fund in place, Iraq could have attracted more international investments, encouraging development in other areas such as agriculture, manufacturing, and services. This diversification would have bolstered the economy’s capacity to thrive long after the oil runs dry.
2. Enhanced Government Pensions and Social Security
In addition to economic stabilization, a sovereign wealth fund could have been instrumental in securing better social services and government pensions for Iraqis. With Iraq’s young population and a significant portion of its citizens dependent on government pensions, the country faces an ongoing challenge to ensure these benefits are sustainable over the long term.
By investing oil revenues in a sovereign fund, Iraq could have built a large financial base to ensure the future of government pensions. Similar to the Norwegian fund, Iraq could have earmarked a portion of its fund for social programs, healthcare, and pensions, guaranteeing that future generations would not bear the full burden of the oil industry’s decline.
3. Increased National Wealth and Revenue Generation
Imagine the impact of having over $400 billion in assets today—had Iraq started building its sovereign wealth fund in 2003. Just like Norway’s GPFG, such a fund would generate revenue from diverse investment returns. Annual returns could easily surpass $40 billion, adding a substantial source of income to the national budget without relying solely on oil exports.
This extra revenue would allow Iraq to reinvest in critical infrastructure, education, healthcare, and other public services. Iraq’s government could have funded development programs, job creation, and modern infrastructure without the crushing burden of international debt or reliance on volatile oil markets.
Moreover, this non-oil income could have provided Iraq with the leverage to better navigate global economic shifts, creating a more self-sufficient economy that would be less vulnerable to outside shocks.
4. Greater Intergenerational Equity
The concept of intergenerational equity—the idea that wealth should be preserved and shared fairly between current and future generations—would be a key feature of Iraq’s hypothetical sovereign wealth fund. By saving and investing today’s oil revenues, Iraq could have ensured that future generations benefit from the wealth generated by their ancestors’ oil discovery, not just from the exploitation of natural resources.
This model contrasts sharply with Iraq’s current reality, where wealth is often misallocated, and corruption impedes equitable wealth distribution. A sovereign fund could have ensured that the people of Iraq reaped long-term benefits from their country’s oil reserves, enhancing the living standards of future generations.
5. Addressing Corruption and Economic Mismanagement
One of the most significant challenges Iraq has faced in the last few decades is the widespread issue of corruption, particularly in the oil sector. If Iraq had established a transparent and accountable sovereign wealth fund, it could have provided a framework for greater oversight of the nation’s wealth. Fund managers, independent of political influence, would have been tasked with ensuring that investments were made for the benefit of the people, rather than being squandered or misused.
Such a fund could have set standards of transparency, accountability, and governance, which would likely reduce the opportunities for corruption within the public sector. With clear financial reporting and well-managed assets, the public would have been able to see exactly how the country’s wealth was being used, helping to rebuild trust in the government and institutions.
6. Boosting Iraq’s Global Standing
A sovereign wealth fund would also improve Iraq’s standing on the global stage. With substantial assets and an investment portfolio that spanned multiple sectors and regions, Iraq would have positioned itself as a more stable, attractive partner for international trade, finance, and diplomacy. It could have expanded its influence within global financial institutions and attracted greater foreign direct investment.
Such visibility and engagement would help Iraq build stronger ties with other nations and position itself as a growing economic player, rather than merely being seen as a nation at the mercy of oil prices and conflict.
Conclusion: The Lost Opportunity
The establishment of a sovereign wealth fund in Iraq could have been a transformative decision, creating a legacy of wealth, stability, and prosperity that would benefit the country for generations. In a time when oil revenues were at their peak, Iraq could have set itself on a path toward economic diversification, social welfare, and financial security. With the right management, today’s sovereign wealth fund could have exceeded $400 billion, generating billions in revenue annually and helping to fund long-term development projects across the country.
Although Iraq didn’t take this step, it is never too late to start planning for the future. By looking to the Norwegian model, Iraq can still take important lessons in financial management, transparency, and long-term planning. The question remains: will Iraq take a bold step toward securing its future, or continue down the uncertain path of oil dependency? The opportunity remains.
Economic Unit/North America Office
Al Rawabet Center for Research and Strategic Studies