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Is 2012 Iraq's Last Chance to Get it Right on Oil?

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The Arab Spring has grabbed the world's attention, yet Iraq -- the Arab country that not long ago was the very epicenter of American foreign policy -- has all but fallen off the front pages. While Iraq's security has improved greatly, the country is still struggling to consolidate a functional government in the face of strong sectarian tensions. Not least of these big challenges is reaching agreement on oil. Eight years after the fall of Saddam, Iraq has yet to pass a hydrocarbons law, let alone come up with a coherent spending plan for its oil wealth.

So how could Iraq manage its oil? One idea (and readers of this blog will be shocked to hear) is a universal dividend paid to all Iraqis. Colleagues Nancy Birdsall and Arvind Subramanian proposed just this idea back in 2004 as a way to try to create accountability. The idea of an Alaska-style dividend for Iraq was starting to catch on, for example, this NY Times oped by Steven Clemons, proposals from Senators Lisa Murkowski (R-AK) and Mary Landrieu (D-LA), and even former Alaskan governor and dividend godfather Jay Hammond tried to export his grand experiment to Baghdad. Given the political and security climate of the time, the idea was thought too radical.

Is it time to think again about an Iraqi dividend? In a new CGD working paper, "Iraq's Last Window: Diffusing the Risks of a Petro-State," Johnny West asks precisely this question. West, a longtime journalist in the Middle East and founder of OpenOil, identifies a new opportunity for direct distribution of Iraqi oil rents in the planned production expansion over the next five years:

The resulting predicted rise in revenues will allow the government to allocate a significant dividend which halves poverty, helps diversify the economy by creating demand at all income levels for goods and services, and stimulates capital formation -- all without cutting into the government's capital spending plans. A dividend, starting at $220 per capita in October 2012 and rising with expanded production, could also cement the affiliation of all citizens to Iraqi territorial integrity, act as a powerful disincentive to secession in oil-producing regions, and create popular pressure among all sections of the population to discourage acts by the ongoing insurgency which disrupt economic reconstruction.

Crucially, West identifies some powerful political actors in Iraq, including Muqtada al-Sadr and several Shiite parties, who support the idea:

The Arab Spring and the entry of the populist Sadrist movement into Nouri al-Maliki's second government have combined to make 2011 the most promising moment to consider a dividend policy since Iraqis took over the political process from the Coalition Provisional Authority in 2004.

An Arabic translation of West's paper is forthcoming shortly and we hope to have Johnny here in Washington for a public event later this fall. If you can't wait until then to hear from him, here's his just-released wonkcast.