Soon after it was first discovered, oil began to dominate the economy. By 1958, 60% of oil production made up the national income. In the mid to late 70's the increase in the price of oil on the world market caused oil revenues to pour into the country. In 1970, its contribution to total government revenue was 52% and by 1976, it had increased to 87%. In 1975, 98% of total exports was crude oil. Money was allocated towards expanding oil industry infrastructure. During this time money from the revenues was also allocated toward development projects to rebuild Baghdad.
In 1979-80, oil made up two-thirds of the GDP (Gross Domestic Product) while agriculture, Iraq's second largest producer made up 8% of the GDP. Before the war with Iran, Iraq had 35 billion dollars in foreign exchange reserves and was producing 3.5 million barrels a day. By 1982, Iraq was the second largest OPEC producer of oil (Saudi Arabia was the largest). During the war with Iran, Iraq's economic development was severely affected as pipelines were destroyed by bombs and money that had previously gone towards electricity and water was now allocated towards defense. At the end of the war, Iraq's 35 billlion dollars in foreign reserves was zero and the country was in debt. Even so, Iraq was still considered to have good economic prospects as the GDP and oil export revenues were steadily increasing.
Air bombs had destroyed much of the electrical power stations that supplied hospitals, water pumping facilities, sewage treatment plants, and water purification facilities. Between 90-95% of Baghdad's drinking water supply was damaged and the population had to rely on drinking water from the Tigris that was now being polluted with raw sewage.
The death rate among children increased as diarrhea, cholera, and typhoid spread as the result of the contaminated drinking water. In the first year alone it was estimated that 170,000 children died from disease and malnutrition.
On August 6,1990, Iraq's economy became crippled as UN Security Council imposed economic sanctions on Iraq. This included bans on the purchase or transhipment of oil and other commodites and on sale or supply of all goods and products to Iraq. On September 25, interdiction of air traffic and detention of Iraqi registered ships were added to the sanction.
As a result of the sanction, Iraq's economy was placed in almost total isolation. The country was devestated because they had depended so heavily on oil and trade as part of their GPD. Because of the drastic cut in their GPD and the sanctions Baghdad did not have the sources to rebuild. Hospitals lacked elementary working tools, there was no food (before as much as 60% had been imported) and no medicine. Inflation increased to 2,000%. The price level of wheat and rice - two normal staple foods remained at 45-25 times prewar prices. The price of a 50kg bag of sugar and rice cost 500 dinars which was equivalent of two months salary of a professional. November 1991, there was reports of food riots in Baghdad and it was reported that only 15% of people could afford to buy food on the free market.
On September 1991, the UN Security Council Resolutions authorized Iraq to export oil at $1,6000m to pay for emergency food and medical imports. According to a US Report of January 1992,countries such as United Kingdom and Italy unfroze part of Iraqi assests under their jurisdiction. These relaxtions enabled Iraq to import badly needed items, it also allowed Iraq to import goods with $2,000m since the end of the wat, representing 25% of prewar GDP.