Analysis of the risks of stranded assets in the Iraqi oil sector under global climate change policies: An economic assessment for the period 2020–2040

Abstract

This study discusses the economic threats facing Iraq because of the global shift towards a low-carbon economy. It focuses on the concept of "stranded assets"—oil resources or infrastructure that may lose their economic value before being fully depleted due to changes in climate policies, technology, or global demand. Oil constitutes more than 90% of Iraq's revenues, making the economy vulnerable to any decline in global oil demand. The study employs a theoretical and analytical approach, reviewing three potential climate scenarios and their projected impacts up to 2050. It indicates that the most severe scenario (a 1.5° trajectory) could lead to a collapse in oil revenues exceeding 80%, rendering a significant portion of Iraq's reserves unusable. The study recommends restructuring the Iraqi economy by diversifying income sources, investing in renewable energy, establishing a sovereign wealth fund to manage oil revenues, and restructuring oil contracts to align with the global shift. It also calls for the establishment of a national council for economic transformation. The study emphasizes that ignoring these transformations is a gamble with Iraq's future, and that successful models like Norway and Saudi Arabia should be studied as examples, while Nigeria serves as a cautionary tale about the failure of wealth management. This research constitutes a call for a radical rethinking of Iraq's development model to ensure the sustainability of its post-oil economy.