The crisis in the Strait has forced Iraq to reassess its participation in OPEC, the cartel-like organization of petroleum-producing countries founded to coordinate prices and supply in the market. Iraq recently threatened to leave the organization if it refused to raise production quotas, and then walked back the threat the same day.
Iraq was able to use the threat of its exit as leverage to push OPEC to raise its quotas, since Iraq is the second largest oil producer within the cartel. The organization has been under increasing pressure since the United Arab Emirates left in May. An Iraqi withdrawal in addition to that could create a new status quo for OPEC as the Strait of Hormuz’ closure significantly disrupts oil markets and global supply chains.
During his recent visit to the United States, Iraqi Prime Minister Ali al-Zaidi said during a White House meeting with U.S. President Donald Trump that “Iraq is one of the founding members of OPEC… Our right is to receive a fair share for Iraq.”
The UAE withdrew over similar concerns, mainly that its assigned quota in OPEC was too low for its production capacity.
Why now?
The closure of the Strait exposed the Iraqi economy’s dependence on oil revenues and the Strait as a transport mechanism — oil makes up 90% of Iraq’s state budget. Before the war, Iraq was exporting 90 million barrels a month via the Strait of Hormuz; in April, that was down to a mere 10 million.
Although the energy crisis was the main factor in Iraq’s recent pressure, Dr. Carole Nakhle, CEO of Crystol Energy, says that the country has long held concerns with its role in OPEC.
“I would interpret it primarily as a negotiating tactic, although the fact that it was raised publicly still matters,” Nakhle said. “Iraq has long felt that wars, sanctions and political instability prevented it from expanding production and market share while other OPEC members were able to do so. Baghdad therefore believes its current quota does not fully reflect either its resource base or its production ambitions.”
She further argued that the UAE’s departure set a new precedent for the member countries of OPEC.
“The UAE’s departure has also shown that withdrawal is no longer an entirely theoretical option, which gives such signals greater weight,” she explained. “But Iraq’s rapid clarification suggests it was testing the boundaries of the discussion rather than preparing an imminent exit.”
“The message to OPEC was nevertheless clear: Baghdad wants a larger allocation and is prepared to make the dispute public,” she said.
The evolution of Iraq in OPEC
Iraq’s participation in OPEC has long been central to managing the country’s oil reserves and regional diplomacy.
Before the Hormuz crisis, experts in the region say OPEC membership was widely viewed as a pillar of Iraq’s economic stability and a tool for balancing ties with Gulf neighbors like Saudi Arabia. The focus was on defending market stability and global oil prices despite occasional internal friction within the organization.
The Strait’s closure upended that calculus. With export capacity hampered, adhering to OPEC production limits is now seen in Baghdad as a fiscal straitjacket, and the prevailing sentiment has shifted from collective price defense to a unilateral push for volume maximization just to keep the state afloat.
Iraq’s domestic fallout
The crisis in the Strait of Hormuz and its consequences have directly impacted daily life for Iraqis.
Its oil-based economy has been the basis of a rentier Iraqi state, where oil revenues support public sector jobs. The dramatic reduction in revenue risks collapsing this infrastructure.
Ordinary Iraqis are already directly feeling the economic pain in everyday life.
Since the beginning of the war in late February, the value of the Iraqi dinar has fluctuated and even plummeted against the U.S. dollar.
Iraq’s electrical grid is also being strained by the summer heat. The state’s reliance on Iranian gas imports has compounded the problem, risking wide-spread blackouts.
Many Iraqis have fallen back on deeply ingrained survival mechanisms, leaning on tribal and family safety nets as the shadow economy expands. But that resilience has limits, and the economic squeeze is fueling a simmering public anger reminiscent of recent protest movements.
This comes after thousands of young Iraqis took to the streets in May to protest a lack of government employment opportunities.
Why the UAE case is different
The UAE’s exit gave Iraq’s threat weight–but the comparison doesn’t hold up. Abu Dhabi could walk away because it had the capacity to do so.
The UAE has massive sovereign wealth funds, a rapidly diversifying economy, and the advanced infrastructure to instantly flood the market and endure a volume war. Iraq, by contrast, has minimal financial buffers, fragile infrastructure, and higher extraction costs in southern oil fields.
Iraq lacks alternatives from OPEC, even though it has become more comfortable exerting leverage on the organization. An exit could also spark a price war.
Riyadh could easily flood the market and crash global prices, leaving Iraq exporting more barrels but earning significantly less total revenue, all while facing severe diplomatic isolation at a time when it desperately needs regional allies.
Since the war on Iran began in late February, the Kurdistan Region of northern Iraq has been attacked over 800 times by Iran and Iranian-backed Iraqi militias.
Dr. Nakhle adds that even with the current energy crisis, Iraq’s participation in OPEC still offers benefits and protections from a volatile oil market.
“Iraq is still likely to benefit more from remaining within OPEC than from leaving it. Membership gives Baghdad influence over collective decisions and offers some protection against an uncontrolled competition for market share that could push prices lower,” she explained. “For a country so dependent on oil revenue, selling more barrels at a significantly lower price would not necessarily improve its fiscal position.”
In the event of an unlikely exit by Iraq from the cartel, the impact would be serious and far-reaching.
“An Iraqi departure would be a much more serious blow than the departure of a smaller producer. Iraq is a founding member and one of OPEC’s largest producers. Combined with the UAE’s departure, Iraq’s departure would reinforce the impression that major producers increasingly value national production flexibility over collective discipline,” Dr. Nakhle said.
Iraq’s threat was an attempt to assert leverage rather than an intent to exit, and it’s likely to stay that way. But paired with the UAE’s exit, Baghdad’s move signals a shift: OPEC’s biggest producers are starting to value flexibility over unity. Whether or not Iraq ever leaves, that pressure alone could reshape how the cartel holds together as the Hormuz crisis threatens global markets.
