Country profile: Iraq

Iraq has the world’s third largest proven petroleum reserves and some of the lowest extraction costs, although just a fraction of its known fields are in development. According to the March 2007, review by the International Monetary Fund (IMF), in 2006, crude oil export revenues represented around 60 percent of GDP and 89 percent of government revenues.

In 2006, the U.S Department of Energy’s Energy Information Administration (EIA) reported that Iraq was the world’s 15th biggest oil producer and Iraq meets approximately 94% of its energy needs with petroleum. Iraq’s use of abundant natural gas resources and hydropower is limited. According to the findings of the December 2006, Iraq Study Group (ISG), led by former Secretary of State James A. Baker and former Congressman Lee H. Hamilton, the stabilization of Iraq is highly correlated with Iraq’s economic success or failure, which in the medium-term is highly dependent on its hydrocarbons industry.

Known as Persia until 1935, Iran became an Islamic republic in 1979 after the ruling monarchy was overthrown and the shah was forced into exile. Conservative clerical forces established a theocratic system of government with ultimate political authority vested in a learned religious scholar referred to commonly as the Supreme Leader who, according to the constitution, is accountable only to the Assembly of Experts. US-Iranian relations have been strained since a group of Iranian students seized the US Embassy in Tehran on 4 November 1979 and held it until 20 January 1981.

During 1980-88, Iran fought a bloody, indecisive war with Iraq that eventually expanded into the Persian Gulf and led to clashes between US Navy and Iranian military forces between 1987 and 1988. Iran has been designated a state sponsor of terrorism for its activities in Lebanon and elsewhere in the world and remains subject to US and UN economic sanctions and export controls because of its continued involvement in terrorism and conventional weapons proliferation. Following the election of reformer Hojjat ol-Eslam Mohammad KHATAMI as president in 1997 and similarly a reformer Majles (parliament) in 2000, a campaign to foster political reform in response to popular dissatisfaction was initiated.

The movement floundered as conservative politicians, through the control of unelected institutions, prevented reform measures from being enacted and increased repressive measures. Starting with nationwide municipal elections in 2003 and continuing through Majles elections in 2004, conservatives reestablished control over Iran's elected government institutions, which culminated with the August 2005 inauguration of hardliner Mahmud AHMADI-NEJAD as president.

In December 2006 and March 2007, the international community passed resolutions 1737 and 1747 respectively after Iran failed to comply with UN demands to halt the enrichment of uranium or to agree to full IAEA oversight of its nuclear program. In October 2007, Iranian entities were also subject to US sanctions under EO 13382 designations for proliferation activities and EO 13224 designations for providing material support to the Taliban and other terrorist organizations.