On March 12, Iran targeted two ships carrying Iraqi oil in the port of Al-Faw in Basra province, in the far south of the country.
This was not the only attack on Iraq’s oil sector.
Since Iran closed the Strait of Hormuz on March 2, concerns have been rising in Baghdad, as the waterway is Iraq’s financial lifeline.
Because of its geographic position as a country with limited maritime access, Iraq relies primarily on its southern ports, whose exports pass through the Strait of Hormuz.
More than 94 percent of Iraq’s oil exports pass through the strait, while oil revenues account for roughly 90 percent of the country’s public budget resources.
The continued closure of the strait does not only mean a halt in shipping traffic; it also threatens the main source of government revenue that the state depends on to finance public spending.
Before the outbreak of the war, Iraq produced about 4.4 million barrels per day under its commitments to the OPEC+ alliance, exporting around 3.3 million barrels daily through the ports of Basra, Al-Amaya, and offshore loading platforms.
But with navigation through the strait halted, tanker traffic has been almost completely disrupted. By March 11, shipping movement had been suspended for more than ten days, causing tankers to accumulate and preventing them from reaching loading ports.
Given Iraq’s limited strategic storage capacity, the Ministry of Oil has been forced to gradually reduce production to avoid storage tanks filling up. Estimates indicate that production in the southern fields has declined by about 70 percent, dropping to roughly 1.3 million barrels per day. Most of this output is allocated to operating domestic refineries and supplying fuel to power plants.
Ziyad al-Hashimi, an economic researcher specializing in international transport economics, said: “If the war and the closure of the strait continue, it will cause a major setback for the Iraqi government and its public budget, as oil revenues could fall by 80 to 90 percent.”
He added to Alhurra: “So far, the situation is manageable and there are financial reserves, but there is no systematic plan for risk management during crises. Iraq has no emergency plan to deal with this crisis.”
This sharp decline in production does not only affect exports; it could also have technical consequences. Sudden well shutdowns in giant fields such as Rumaila and West Qurna may lead to issues related to reservoir pressure and the accumulation of materials inside wells. This could make restoring previous production levels more complex and costly after the crisis ends.
Financially, Iraq’s direct losses from the halt in oil exports are estimated at between $6 billion and $7 billion per month, based on current prices that have exceeded $115 per barrel. Ironically, the rise in global oil prices caused by the crisis does not benefit Iraq, because it is unable to take advantage of these higher prices while its exports remain disrupted.
These developments directly affect the country’s financial situation. Iraq’s budget depends heavily on oil revenues, while operational spending—especially salaries, pensions, and social protection programs—constitutes the largest portion of government expenditures.
There are about 3.6 million public-sector employees, in addition to nearly 2.9 million retirees. A large portion of local economic activity depends on these salaries, which drive purchasing power in the markets.
Ghazi al-Faisal, director of the Iraqi Center for Strategic Studies, told Alhurra that “the closure of the strait will certainly cause harm, but Iraq is not involved in the war and has an exemption allowing its tankers to pass. If Iraqi oil does not pass, the Iraqi economy will be harmed in terms of paying salaries and importing goods.”
He added: “Iraq will certainly be affected by the war, and closing the strait will not harm Iraq alone but several countries.”
Within economic circles, discussions are underway about a range of emergency options. These include resorting to domestic borrowing or using part of financial reserves, in addition to reducing some spending items and postponing investment projects.
The impact of the crisis is not limited to the financial sector; it also extends to Iraq’s energy sector. A significant portion of electricity production relies on associated gas produced during oil extraction. With the decline in oil output, the amount of gas available to power plants has dropped significantly, increasing pressure on the energy system.
Disruptions in gas supplies imported from Iran due to the war have also affected electricity supply hours in several provinces. The government has been forced to rely on alternative fuels such as diesel and crude oil to operate some power plants, a temporary solution that raises operational costs and places additional strain on plant infrastructure.
Financial and economic expert Safwan Qusay Abdul Halim told Alhurra that “Iraq has strong financial buffers that enable it to face the repercussions of the war in the region, despite the near-total interruption of its oil revenues.”
He added that “the Iraqi Central Bank’s reserves, which exceed $100 billion, are sufficient to cover the issued money supply with a surplus of about $30 billion, ensuring the stability of the dinar without affecting inflation rates.”
At the same time, trade activity in Iraqi ports has been affected, particularly at the port of Umm Qasr, which represents the main gateway for food and pharmaceutical imports into the country. With shipping traffic halted, the government and traders have begun searching for alternatives through land crossings with Turkey and Jordan.
However, these alternatives face challenges related to higher transportation costs compared with maritime shipping, as well as limited capacity at land crossings and customs procedures that may affect the speed of goods flow.
Proposals have been raised to boost oil exports through Turkey’s Ceyhan port as well as through Jordan and other alternative export routes. However, Ziyad al-Hashimi, the economic researcher specializing in international transport economics, said: “Exports via Ceyhan or by land transport trucks to Jordan are negligible compared to the halt in exports through the Strait of Hormuz.”
The article is a translation of the original Arabic.
Mustafa Saadoon
Mustafa Saadoon is an Iraqi journalist who has worked for several international and Arab media organizations. He covers politics and human rights.
