Question

In response to Iraq’s invasion of Kuwait in 1990, the United States and its allies-imposed trade and financial sanctions on Iraq. Imports of Iraqi oil were terminated as were exports of machinery, parts, and the like, to Iraq. Bank loans to Iraq and business investment in Iraq were also curtailed. Illustrate the effects of the economic sanctions on Iraq’s production possibilities curve for textiles and oil. Under what conditions would the sanctions have been most likely to cause Iraq to withdraw from Kuwait?

Answer 1

The economic sanctions imposed on Iraq in response to its invasion of Kuwait in 1990 had significant effects on Iraq's production possibilities curve for textiles and oil.

The production possibilities curve (PPC) represents the maximum combination of goods or services an economy can produce given its resources and technology.

How did it effect?

Textiles:

• The sanctions would have negatively impacted Iraq's textile industry.
• The termination of imports of machinery, parts, and related goods would have limited Iraq's ability to upgrade and modernize its textile manufacturing capabilities.
• This could lead to a decline in textile production, as outdated machinery and technology would hinder efficiency and quality.

Oil:

• Iraq heavily relies on oil exports for revenue, and the sanctions had a severe impact on its oil industry.
• The termination of oil exports severely limited Iraq's ability to generate income and access foreign markets.
• The lack of investment and technology due to curtailed business activities would have hindered oil exploration, extraction, and production.
• As a result, Iraq's oil production would have likely decreased significantly.

The combined effects of the sanctions on both textiles and oil would have shifted Iraq's production possibilities curve inward.

The reduced access to machinery, technology, and investments would have limited Iraq's productive capacity in both sectors, leading to a decline in overall output.

• Regarding the conditions that would have caused Iraq to withdraw from Kuwait, the economic sanctions alone might not have been sufficient.
• The United States and its allies also launched a military intervention known as the Gulf War in 1991 to compel Iraq to withdraw from Kuwait.
• The military pressure, combined with the economic sanctions, created a situation where Iraq faced increasing international isolation, military confrontation, and severe economic strain.

Ultimately, the withdrawal of Iraq from Kuwait was influenced by a combination of military and economic factors, along with international diplomatic efforts.

The military intervention played a crucial role in achieving the desired outcome, while the economic sanctions contributed to weakening Iraq's economic and military capabilities.