Iraq's economy in crisis after war, Strait closure; losses exceed $37 billion

Iraq's economy is grappling with one of its most severe crises in decades, with estimated losses exceeding $37 billion following the recent regional war and the closure of the Strait of Hormuz. This financial blow has starkly exposed the nation's near-total dependence on a single maritime export route for its crucial oil revenues.

As Baghdad struggles to finance public-sector salaries, resorting to domestic borrowing and drawing down foreign-exchange reserves, the crisis has intensified scrutiny of long-standing issues. These include poor planning, corruption, and political obstruction that have hindered strategic projects like the Basra-Aqaba oil pipeline. Such initiatives could have provided vital alternative export routes and a safety net for Iraq's primary income source.

Energy experts warn that even as the conflict winds down and the Oil Ministry expresses optimism, Iraqi oil fields might require months to return to their pre-war production levels. Before the crisis, Iraq produced over 4.2 million barrels per day, with approximately 3.5 million barrels destined for international markets. The conflict has revealed a "dangerous strategic vulnerability" stemming from Iraq's overwhelming reliance on southern Gulf export terminals and the Strait of Hormuz.

The crisis has also reignited discussions about decades of mismanagement and inadequate planning within Iraq's vital oil sector. Historically, Iraq possessed several overland export routes, including pipelines to Türkiye, Saudi Arabia, and older lines to Haifa and Baniyas. However, most have been non-operational for years due to wars, political instability, and security challenges, leaving the country with limited alternatives.

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dangerous strategic vulnerability