Iraq is offering discounts of nearly $30 a barrel on Basra crude, an extraordinary concession intended to persuade buyers to shoulder the cost and danger of sending tankers to the country’s southern terminals as shipping through the Strait of Hormuz remains severely disrupted.
Government sources told MBN that Baghdad hopes the price cuts will protect its oil exports and vital state revenues after the closure of the strait and the war between the United States and Iran sharply reduced the number of tankers willing to sail to Basra’s offshore loading platforms in the northern Gulf.
Marketing documents presented to buyers this week by Iraq’s state oil marketer, SOMO, show Basra Medium crude being offered at discounts of $25 to $27 a barrel against benchmark prices, depending on the destination and loading point. Basra Heavy is being offered at discounts ranging from $27.80 to $29.80 a barrel.
The company asked buyers to nominate their contracted volumes on a free-on-board, or FOB, basis from the Basra Oil Terminal and its single-point mooring facilities. Under such terms, responsibility and risk pass to the buyer once the crude has been loaded, making the discount partial compensation for the cost of insurance and the voyage through the Gulf.
Asem Jihad, an oil expert and former spokesman for Iraq’s Oil Ministry, told MBN that the discounts “do not necessarily mean that Iraq has an oil surplus it is trying to dispose of.” Rather, he said, they reflect the higher risks and costs associated with loading crude from ports that depend on the Strait of Hormuz.
Jihad described the reductions as a “negative risk premium.” Instead of the buyer paying more to assume the risk, Iraq gives up part of the value of its oil to compensate the buyer for taking it on.
He said FOB sales meant that “responsibility for the cargo, as well as its costs and risks, passes to the buyer after loading.” The steep discount therefore becomes an incentive for refiners and trading companies capable of securing tankers and accepting the risk.
The Cost of Geography
But why must Iraq offer more generous discounts than its neighbors? It comes down largely to geography.
Ziad al-Hashimi, an economist, told MBN that Iraq’s national oil marketing company justified the reductions by noting that other Gulf producers were also discounting their crude. But he said two fundamental factors explained the scale of Iraq’s concessions.
The first is the steep decline in the number of tankers available to carry Gulf oil, after much of the global fleet was redirected toward markets less exposed to geopolitical risk, chiefly the United States, Russia and Brazil.
The second is that shipowners operating in the Gulf have increasingly adopted a “quick entry and quick exit” tactic to take advantage of periods of relative calm in the confrontation between the United States and Iran.
That tactic, Hashimi said, imposes its own geographical logic on loading operations.
“Quick entry and quick exit require loading oil from the nearest available point of sale,” he said. “We may be talking here about Saudi Arabia’s Ras Tanura loading terminals, followed by an immediate departure from the Gulf.”
Iraqi oil, by contrast, “is loaded from the Basra platforms, which are located at the far northern end of the Arabian Gulf,” he said. “That requires vessels to sail a greater distance in order to buy or load Iraqi crude.”
The clearest evidence that the discount is driven by security conditions rather than production levels is the way it has fluctuated.
According to Jihad, Iraq offered discounts of more than $30 a barrel on some Basra crude cargoes in May. The reductions narrowed in July to about $14 to $19, before widening again as concerns over tanker traffic returned.
“This confirms that the size of the discount moves in line with the level of risk, not with the existence of a permanent production surplus,” he said.
Seven Months That Emptied the Port
Iraq’s oil crisis began on Feb. 28, when Iran’s Islamic Revolutionary Guard Corps, which the United States designates as a foreign terrorist organization, announced the closure of the Strait of Hormuz as joint American and Israeli strikes on Iran began.
The waterway, which normally carries volumes equivalent to about one-fifth of the world’s daily oil and liquefied natural gas supplies, was transformed from a commercial shipping route into an instrument of pressure in the war.
During the following month, Iraqi exports fell to 549,000 barrels a day, compared with 3.28 million barrels a day in March of the previous year, a decline of 83 percent.
At the same time, the cost of chartering a very large crude carrier from the Gulf to China soared from about $220,000 a day before the war to a peak of nearly $600,000.
By May, Iraq’s seaborne crude exports had fallen to just 98,000 barrels a day, down 97 percent from the same month in 2025.
A memorandum of understanding to halt the war was signed on June 17, offering shipping traffic a brief reprieve. Exports in May and June improved to an average of 526,000 barrels a day, compared with 329,000 in April.
Iraq’s oil minister, Bassem Mohammed Khudair, said combined exports through the Strait of Hormuz and the Kirkuk-Ceyhan pipeline had reached about 1.5 million barrels a day in July before the renewed escalation.
During the first half of 2026, Iraq’s oil exports averaged 1.32 million barrels a day, compared with 3.32 million during the same period in 2025, a decline of 60 percent.
In an interview with MBN several days ago, Mudher Mohammed Saleh, the Iraqi prime minister’s financial adviser, said a prolonged closure of the Strait of Hormuz would be disastrous for Iraq because the country exports most of its oil through the waterway.
A tender Somo issued in June for July cargoes failed to attract sufficient interest because traders were unable to secure tankers willing to enter the Gulf — precisely the shrinking pool of available vessels described by Hashimi.
Exports, however, did not stop entirely.
The very large crude carrier Noble sailed through the strait on Friday bound for China after loading Iraqi crude on July 25. PetroChina also provisionally chartered the Jamaica Prosperity to load crude from Basra around Aug. 3.
Jihad said Iraq was operating “in a genuine regional competition for the Asian market, particularly as Saudi Arabia, the United Arab Emirates and Kuwait increase exports and larger volumes return to the market.”
Iraq has three objectives in that competition: keeping production flowing, securing urgently needed cash revenues and retaining its customers in Asia. The price is the same in each case: surrendering a substantial share of the value of every barrel.
Its competitors also possess advantages that Iraq does not.
Saudi Arabia and the United Arab Emirates have pipelines and export outlets that reduce their dependence on the Strait of Hormuz for at least part of their shipments. Iraq has far less flexibility in bringing its crude to market.
Baghdad is trying to change that equation.
In June, the government approved a plan to raise pipeline exports from 220,000 to 770,000 barrels a day and increase overland shipments to 420,000 barrels a day.
The 970-kilometer Kirkuk-Ceyhan pipeline, which runs to the Mediterranean and resumed operations in September 2025 after being shut for two and a half years, carried a total of about 1.56 million barrels during May and June.
The Final Calculation
Iraq entered 2026 without an approved federal budget and has relied on temporary spending rules to finance government operations.
Parliament is now moving toward preparing the 2027 budget as the country faces debts and financial obligations of nearly $108.7 billion.
Preliminary discussions over the 2026 budget had been based on an assumed oil price of about $60 a barrel, according to Saleh, the prime minister’s financial adviser.
Adapted and translated from the original Arabic.
