The financial adviser to Iraq’s prime minister, Mazhar Mohammed Saleh, estimated that the Iran war has cost Iraq between $40 billion and $45 billion, driven by a sharp decline in oil exports and the suspension of development projects the government had planned to pursue.
In an interview with MBN, Saleh said the figure represents what economists refer to as the “opportunity cost”—the revenues and projects Iraq has lost between Feb. 28 and mid-June 2026. He warned that the losses would continue to mount as long as the conflict persists, and oil exports remain below prewar levels.
Iraq depends on oil to finance the vast majority of its public spending. Before the war, the country exported about 3.3 million barrels of crude per day, generating an estimated $88 billion in annual revenue.
But Saleh said exports fell to less than 10 percent of their normal level after Feb. 28, with shipments continuing only through limited routes, including Turkey and Jordan.
The decline in oil revenue has increased pressure on the government, which requires billions of dollars each month to cover salaries and essential expenditures.
Saleh said the government had established what he described as “red lines” that would not be crossed, including public-sector salaries, wages, pensions, grants and social welfare programs.
Those payments amount to roughly 8 trillion Iraqi dinars, or about $5.9 billion, each month at the official exchange rate of 1,320 dinars to the dollar. Monthly spending rises to about 11 trillion dinars when other amenities—including electricity sector costs, pharmaceuticals, food subsidies and external debt servicing—are included.
According to Saleh, about nine million Iraqis receive these payments directly, including family members who depend on them, meaning that nearly 40 million people—out of Iraq’s population of roughly 50 million—are affected.
Financing the Deficit
As oil revenues declined, the government turned to domestic borrowing to secure liquidity.
Saleh said the Finance Ministry has been issuing treasury bills carrying interest rates of between three and five percent to state-owned banks, which can then rediscount the securities with the Central Bank of Iraq when they need liquidity. He described the approach as “quantitative easing, Iraqi-style,” comparing it to measures used by the European Central Bank to support economies during periods of crisis.
The increased reliance on this form of financing has pushed Iraq’s domestic public debt above 106 trillion dinars, more than 60 percent of which is held by the central bank, Saleh stated.
He also said the central bank’s reserves, which stood between $105 billion and $106 billion before the war and were diversified across gold, foreign currencies and highly rated government securities, have declined.
Saleh did not disclose the current level of reserves but said they had fallen by less than 50 percent. He noted that Iraq continued to receive delayed payments for oil shipments exported before the war, as export proceeds typically arrive about two months after shipment. Those payments, he said, helped ease financial pressure during the third and fourth months of the conflict.
He added that foreign exchange reserves still cover nearly 90 percent of the local currency in circulation, or slightly less, compared with what he described as a minimum acceptable threshold of 75 percent under prevailing monetary standards.
Saleh said the ratio suggests Iraq has maintained a degree of monetary stability despite the fiscal pressures and reduced inflows of U.S. dollars caused by the war.
An Economic Bet on Washington
Saleh devoted a significant portion of the interview to discussing Prime Minister Ali al-Zaidi’s visit to Washington, describing it as “a turning point” in Iraq’s economic thinking.
He said Baghdad is seeking to shift its focus away from geopolitics, security disputes and border tensions toward what he called “economic geography,” centered on resources, production and investment.
According to Saleh, economic cooperation has remained the weakest pillar of the Strategic Framework Agreement signed between Iraq and the United States in 2008. Of the agreement’s 10 areas of cooperation, security has seen the greatest implementation, while economic cooperation has remained largely dormant.
Saleh said al-Zaidi’s visit resulted in the signing of 48 memorandums of understanding with a nominal value of about $60 billion. He described the agreements as expressions of “goodwill” that could help rebuild economic confidence between the two countries, while emphasizing that they do not yet constitute implemented investments.
The government is counting on major U.S. energy companies, including Chevron and Exxon Mobil, to help increase Iraq’s oil production by an additional two million barrels per day over the next two years, he said.
The additional revenue, Saleh said, would be directed to a planned Iraq Energy and Development Fund rather than absorbed into the state budget to finance routine operating and consumer spending.
Government officials have discussed projections that the fund’s assets could eventually reach about $400 billion, with the money earmarked for infrastructure and development projects, particularly in the electricity sector.
However, key details of the proposal remain unresolved. Saleh acknowledged that the fund’s governance, oversight mechanisms and management structure are still under discussion, calling them “the most important question” that must be answered before the initiative can move forward.
Dispute With OPEC
The success of the plan depends in part on Iraq’s ability to increase production under the quota system administered by the Organization of the Petroleum Exporting Countries, or OPEC.
Saleh argued that OPEC has “treated Iraq unfairly” in allocating production quotas since the outbreak of the Iran-Iraq War in 1980, leaving the country with constrained production capacity during periods when it needed to rebuild its economy.
He called for Iraq to receive an expanded quota that would allow it to produce an additional two million barrels per day to finance the proposed development fund.
Rejecting such a request, he said, would undermine OPEC’s credibility with Iraq, one of the organization’s founding members in 1961.
Banking Sector Overhaul
Saleh also discussed the government’s efforts to reform Iraq’s banking sector, which has faced mounting U.S. pressure in recent years over concerns related to money laundering, dollar smuggling and compliance with international financial regulations.
He said the government’s first phase focuses on restructuring seven Iraqi banks to better integrate them into the global financial system while strengthening compliance, governance and anti-money laundering standards.
Baghdad hopes these reforms will pave the way for the easing of U.S. sanctions imposed through the Office of Foreign Assets Control on several Iraqi banks. 28 financial institutions have been restricted from conducting direct transactions in U.S. dollars.
Saleh pointed to a study by the U.S. consulting firm Oliver Wyman, which recommended increasing the capital of the targeted banks to more than 400 billion dinars to prepare them for international partnerships and correspondent banking relationships with major global institutions, including JPMorgan.
He said Iraq’s private banking sector, which includes about 62 banks, is likely to undergo consolidation, with mergers involving two or three institutions. The seven banks undergoing restructuring, however, are expected to remain independent after completing their reforms, while weaker institutions that fail to meet the new requirements could face liquidation.
Whether Iraq’s pivot toward Washington translates into real investment — or remains, as Saleh put it, an expression of “goodwill” — will likely shape the country’s economic trajectory for years to come as it deals with the consequences of regional conflict.
Adapted and translated from the original Arabic.
