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Executive Summary

The effects of COVID-19 have begun to recede in Iraq, and vaccination rates are rising daily.  The Iraqi economy is recovering and reverting to more normal conditions.  However, the 2020 devaluation of the dinar and Russia’s war against Ukraine have exacerbated inflationary pressures, resulting in price increases, particularly on agricultural products. As of April 2022, the new government has not yet been formed and policies of the new government remain uncertain.

Widespread protests in October 2019 caused the resignation of then-PM Adil Abdul-Mahdi and his government.  After a lengthy period of government formation, the current government of PM Mustafa al-Kadhimi came to power in May 2020.  Sporadic, sometimes violent, protests continue, especially in the country’s south.  Iraq held national elections in October 2021, with the government formation process expected to continue into 2022.

In October 2020, Iraq’s cabinet approved an economic reform agenda known as the “white paper,” which identified numerous reforms, legislative amendments, subsidy cuts, and e-government measures that are broadly in line with previous World Bank and IMF reform recommendations.  The white paper acknowledged the scope of Iraq’s structural economic problems and aimed to place the country on a private sector-driven economic growth path.  While Finance Minister Ali Allawi asserted that his ministry itself was able to implement 65 percent of the reforms, there was a lack of collaboration and buy-in from other ministries due to entrenched opposition from stakeholders who profit from Government of Iraq (GOI) opacity and inefficiency.  Iraq did achieve one key white paper initiative, one-stop company registration, with the launch of its Online Single Window, which used the United Nations Conference on Trade and Development’s (UNCTAD) digital solutions platform.

The security environment, including the threat of resurgent extremist groups, remains an investment impediment in many parts of the country.  Other lingering effects of the fight against ISIS include major disruptions of key domestic and international trade routes and the negative impacts on respective economic infrastructure.  Many militia groups that participated in the fight against ISIS remain deployed and are only under nominal government control.  Militia groups have been implicated in a range of criminal and illicit activities in commercial sectors, including extortion.  However, the security situation varies throughout the country and is generally less problematic in the Iraqi Kurdistan Region (IKR).

Investors in Iraq face challenges resolving issues with legitimate GOI entities, including procurement disputes, receiving timely payments, and winning public tenders.  Difficulties with corruption, business registration, customs regulations, irregular and high tax liabilities, unclear visa and residency permit procedures, arbitrary application of regulations, lack of alternative dispute resolution mechanisms, electricity shortages, and lack of access to financing remain common complaints for local and foreign companies operating in Iraq.  Shifting and unevenly enforced regulations that often change with new government formation create additional burdens for investors.

Despite these challenges, the Iraqi market offers potential for U.S. exporters.  Iraq regularly imports rice, wheat, and other agricultural commodities, as well as machinery, consumer goods, and defense articles.  While non-oil bilateral trade with the United States was $805.8 million in 2021, Iraq’s economy had an estimated GDP of $98 billion.  Government contracts and tenders are the source of most commercial opportunities in Iraq in all sectors, including the significant oil and gas contracts, and have been financed almost entirely by oil revenues.  Increasingly, the GOI has asked investors and suppliers to provide financing solutions and allow for deferred payments.

Investors in the IKR face many of the same challenges as investors elsewhere in Iraq, but the IKR’s security and regulation environments are more stable.  However, the region’s economy has struggled to recover from the 2014 ISIS offensive and ongoing disputes with the central government over revenue sharing.  The GOI’s Federal Supreme Court (FSC) February 15, 2022 decision declared the Kurdistan Regional Government (KRG) 2007 oil and gas law to be unconstitutional.  The oil contracts impacted by this decision are the KRG’s largest revenue source, providing economic stability when oil prices at present are rising.  Local businesses welcome an American Chamber of Commerce presence in the IKR, hoping to improve KRG’s business process effectiveness and transparency.

Water scarcity is a present danger and the salinization of water and soils, desertification, and the disappearance of arable land are existential environmental concerns connected to poor resource management and climate change.  These challenges also represent economic opportunities in Iraq, which needs investments in green and renewable energy, modern irrigation systems, and the infrastructure to capture flared gas.

The Trade and Investment Framework Agreement (TIFA) was approved by the Iraqi Council of Representatives (COR) in 2012 and became effective the following year.  The U.S. and Iraqi governments subsequently established the Trade and Finance Joint Coordination Committee and held the first TIFA meeting in Washington in March 2014.  A second meeting was held in June 2019.

Trade data resources in addition to Table 1 Key Business Metrics and Rankings include:

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2021 157 of 180
World Bank’s Doing Business Report 2020 172 of 190
Global Innovation Index N/A N/A
U.S. FDI in partner country ($M USD, historical stock positions) N/A N/A
World Bank GNI per capita N/A N/A

1. Openness To, and Restrictions Upon, Foreign Investment

3. Legal Regime

4. Industrial Policies

5. Protection of Property Rights

6. Financial Sector

7. State-Owned Enterprises

SOEs are active across all sectors in Iraq.  GOI ministries currently own and operate over 192 SOEs, a legacy of the state planning system.  The GOI’s continued support of unprofitable entities places a substantial fiscal burden on Iraq, as many SOEs are unproductive.  These firms employ over half a million Iraqis, many of whom are underemployed.  The degree to which SOEs compete with private companies varies by sector; SOEs face the most competition in the market for consumer goods.  The GOI had expressed a commitment to reforming the SOEs and taking steps toward privatization as part of its previous international financing programs.

Iraqi law permits SOEs to partner with foreign companies.  When parent ministries wish to initiate a partnership for an SOE under their purview, they generally advertise the tender on their ministry’s website.  Partnerships are negotiated on a case-by-case basis and require the respective minister’s approval.  Iraq does not have a centralized ownership entity that exercises ownership rights for each of the SOEs.  SOEs are required to seek their parent ministry’s approval for certain categories of financial decisions and operation expansions. However, in practice, SOEs defer to the parent ministry for most decisions.  SOEs submit financial reports to their parent ministry’s audit departments and the Board of Supreme Audit.  These reports are not published and sometimes exclude salary expenses.

The Ministry of Industry and Minerals (MIM), which oversees the largest number of Iraq’s SOEs, established the following requirements for partnerships:  minimum duration of three years, the foreign company must register a company office in Iraq, and the foreign company must participate in the production of goods.  Foreign companies have faced challenges in partnerships because the GOI has, at times, cut subsidies to SOEs after partnerships were formed and due to conflicts between the parent ministry and the GOI’s official policy.  In addition, the MIM has often required that the foreign investor pay all SOE employees’ salaries regardless of whether they are working on the agreed project.

GOI entities are required to give preferential treatment to SOEs, under multiple laws.  A 2009 COM decision requires all Iraqi government agencies to procure goods from SOEs unless SOEs cannot fulfill the quality and quantity requirements of the tender.  A Board of Supreme Audit decision requires government agencies to award SOEs tenders if their bids are no more than 10 percent higher than other bids.  Furthermore, some GOI entities, including the MIM, have also issued their own internal regulations requiring tenders to select Iraqi SOEs, unless Iraqi SOEs state that they cannot fulfill the order.  Sometimes a foreign firm must form a partnership with an Iraqi firm to fulfill SOE-promulgated tenders.  Further, SOEs are exempt from the bid bond and performance bond requirements that private businesses are subject to.

Iraq is not a party to the Government Procurement Agreement within the framework of the WTO.  SOEs do not adhere to OECD guidelines.

Iraqi law supports a degree of autonomy in the selection process of an SOE’s board of directors.  For example, it requires that a minister’s sole appointment to a board of directors receive the approval of an “opinion board.”  Nevertheless, in practice, most board members have close personal and political connections to their parent ministry’s leadership.

8. Responsible Business Conduct

The international oil companies active in Iraq are required to observe international best practices in corporate social responsibility (CSR) as part of their contracts with the GOI.  Nevertheless, the GOI does not have policies in place to promote Responsible Business Conduct (RBC) and raise awareness of environmental and social issues among investors.  The concept of RBC is not widely recognized in Iraq.

Investors are required to protect the environment and adhere to quality control systems.  These include soil testing requirements on the land designated for the project as well as conducting an environmental impact study.  In practice, the GOI lacks a mechanism to enforce environmental protection laws and implementation is limited.

Iraq became a member of the Extractive Industries Transparency Initiative (EITI) in 2009.  The GOI established a 15-person committee to work on EITI, including several directors general within the Ministry of Oil (MOO), four representatives from NGOs, and oil company executives.  The committee provided required reports through 2013. In November 2017, the EITI Board suspended Iraq’s membership for lack of progress.

9. Corruption

Iraq ranked 157 out of 180 in Transparency International’s 2021 Corruption Perception Index, a slight improvement from its ranking of 160 in 2020.  Public corruption is a major obstacle to economic development and political stability.  Corruption is pervasive in government procurement, in the awarding of licenses or concessions, dispute settlement, and customs imports and exports.

While large-scale investment opportunities exist in Iraq, public and private corruption remain a significant impediment to conducting business.  Foreign investors can expect to contend with corruption in many forms, at all levels.  While the GOI is trying to reduce procurement corruption in sectors such as electricity, oil, and gas, credible reports of corruption in government procurement are widespread, with examples ranging from bribery and kickbacks to awards involving companies connected to political leaders.  Investors may come under pressure to take on well-connected local partners to avoid systemic bureaucratic hurdles to doing business.  Similarly, there are credible reports of corruption involving large-scale problems with government payrolls, ranging from “ghost” employees and salary skimming to nepotism and patronage in personnel decisions.

Importing and exporting goods remains difficult, and bribery of or extortion by port officials is commonplace. Iraq ranked 181 out of 190 countries in the category of “Trading Across Borders” in the World Bank’s 2020 Doing Business report.

U.S. firms frequently identify corruption resulting from Iraq’s opaque business regulatory environment as a significant obstacle to FDI, particularly in government contracts and procurement, as well as performance requirements and performance bonds.  U.S. companies are obligated to follow U.S. laws such as the Foreign Corrupt Practices Act (FCPA).

Several institutions have specific mandates to address corruption in Iraq.  The Commission of Integrity (COI), initially established under the Coalition Provisional Authority (CPA), is an independent government agency responsible for pursuing anti-corruption investigations, upholding the enforcement of laws, and preventing crime.  The COI investigates government corruption allegations and refers completed cases to the Iraqi judiciary.

After an unsuccessful Inspector General program, the GOI attempted several anti-corruption initiatives from 2004-2022.  However, anti-corruption oversight remains with the Board of Supreme Audit (BSA), established in 1927.  BSA is an analogue to the U.S. government’s General Accountability Office.  It is a financially and administratively independent body that derives its authority from Law 31 of 2011, the Law of the Board of Supreme Audit.  It is charged with fiscal and regulatory oversight of all publicly funded bodies in Iraq and auditing all federal revenues, including any revenues received from the IKR.

The Kurdistan Board of Supreme Audit is responsible for auditing regional revenues with IKP and GOI oversight.  The IKP established a regional Commission of increasing its jurisdiction in 2014 to include other branches of the KRG and money laundering.  In 2021, the IKP ordered the establishment of a Kurdistan Anti-Corruption Court.  However, the KRG has not implemented the order, which falls to the Judicial Council.

Iraq is a party but not a signatory to the UN Anticorruption Convention.  Iraq is not a party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

10. Political and Security Environment

Iraqi security forces continue to carry out counter-terrorism operations against ISIS cells throughout the country.  Terrorist attacks within the IKR occur less frequently than in other parts of Iraq, although the KRG, U.S. government facilities, and Western interests remain possible targets.  In addition, Iran-aligned militias threaten U.S. citizens and companies throughout Iraq.

Travelers should review the embassy’s official COVID-19 page, which is updated weekly, before traveling:

State Department guidance to U.S. businesses in Iraq advises the use of protective security details.  Detailed security information is available on the U.S. Embassy website:  Some U.S. and third country businesspeople travel throughout much of Iraq; however, in general their movement is restricted with security advisors and protective security teams taken on most travels.  Embassy Baghdad and Consulate Erbil maintain an active branch of the Overseas Security Advisory Council.

11. Labor Policies and Practices

Iraq continues to face high unemployment, a large informal sector, lack of satisfactory work standards, and unskilled labor force.  Domestic and foreign investors often cite the lack of skilled Iraqi labor as one of the major impediments to investing in Iraq, as political instability and violence led many highly educated Iraqis to leave the country in recent years.  More than 1.2 million Iraqis remained displaced due to conflict as of April, with most unable to find jobs or pursue livelihood activities to support their families.

Foreign investors tend to rely on foreign workers, although at least 50 percent of an investment project’s workers must be Iraqi nationals.  International companies have noted that it can be a challenge to meet this requirement.   In the IKR, hiring locally is encouraged but not mandated.

The Iraqi constitution states that citizens have the right to form and join unions and professional associations.  Iraq is a party to both International Labor Organization conventions related to youth employment, including child labor.  Iraqi labor laws also regulate working conditions and prohibit all forms of forced or compulsory labor, including by children.  However, the GOI has not effectively monitored or enforced the law, which has resulted in unacceptable working conditions for many workers, including children.

Iraqi’s labor law, revised in 2016, is more consistent with current international standards than previous laws and allows for collective bargaining, further limits child labor, and provides improved protections against discrimination at work.  The law addresses sexual harassment at work and provides protection against it and enshrines the right to strike, which had been banned since 1987.  The GOI no longer limits workers’ affiliation with more than one union or federation, and coverage has been expanded to include all workers not covered by Iraq’s civil service law.  The IKR did not implement the new labor law and continues to operate under the 1987 statute.

Ministry of Labor and Social Affairs (MOLSA) sets a minimum monthly wage for unskilled workers.  The private sector sets wages by contract, and the GOI sets wages for those working in the public sector.  The COM last approved changes to the public sector pay scale in January 2015, reducing the pay gap between low- and high-ranking employees.  In addition, all employers must provide some level of transport, accommodation, and food allowances for each employee, but the law does not fix these allowance amounts.  In December 2013, the GOI launched a Social Safety Net program to assist the unemployed and persons with disabilities in gaining access to financial aid and benefits from the government; as of April 2018, MOLSA’s Directorate of People with Disabilities and Special Needs reported the program covers approximately 4 million individuals.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

The GOI collects and publishes limited statistics with which to compare international and U.S. investment data.  The NIC and PICs granted 1067 licenses between 2008 and 2015 (latest statistics available) with a total potential value of $53.9 billion.

In the IKR, the KBOI granted licenses to 166 projects from the period of January 2019 to March 2021, with a total potential value of $5.11 billion.  This represented a capital increase of $1.98 billion (163 percent) compared to 2018.

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source* USG or international statistical source USG or International Source of Data:  BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2021 $166.757  2020 $234,094
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:  BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2016 $5,911 2019 $1,928 BEA data available at
Host country’s FDI in the United States ($M USD, stock positions) N/A N/A N/A N/A BEA data available at
Total inbound stock of FDI as % host GDP 2016 3.5% N/A N/A UNCTAD data available at

* Source for Host Country Data:

Table 3: Sources and Destination of FDI

Data not available.

14. Contact for More Information

Embassy Baghdad Economic Section
Al-Kindi Street, International Zone, Baghdad
Office: +1-301-985-8841 x3013

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