No exit but Hormuz: Iraq's economic vulnerability exposed
Shafaq News- Baghdad
For decades, Iraq's economic model has rested on a simple assumption: the Strait of Hormuz would remain open. That assumption collapsed on February 28, 2026, when Iran shut the strategic waterway in response to the US-Israeli attacks that killed Supreme Leader Ayatollah Ali Khamenei, exposing the extent to which Iraq's fiscal stability, trade flows, and energy sector remain dependent on a single maritime corridor.
According to official government data, between 96% and 97% of Iraq's crude exports pass through the Strait of Hormuz, while oil revenues account for roughly 90% of the state's income. More than 70% of the country's imports, including food, medicine, and industrial goods, arrive through southern Gulf ports.
The closure of the strait, therefore, directly challenges the foundations of an economy that, despite repeated warnings over several decades, has yet to develop meaningful alternatives for either exports or imports.
The scale of the impact became apparent within weeks. Oil Minister Basim Mohammed announced on May 16 that Iraq exported just 10 million barrels of crude in April, compared with a pre-crisis monthly average of approximately 93 million barrels, marking an 89% decline in a single month. According to estimates from the Eco Iraq Observatory, Iraq has lost approximately 350 million barrels of export volume since the closure began, equivalent to nearly $37.7 billion in foregone revenue.
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Economic researcher Ahmed Eid told Shafaq News that any restrictions on tanker movements or disruptions to maritime navigation immediately translate into lower export volumes and reduced government revenues, placing pressure on public spending, development projects, and essential services.
The financial impact extends beyond lost exports. Economic expert Safwan Qassi estimated Iraq's daily losses at no less than $30 million, even after accounting for alternative routes, due to rising transportation and insurance costs and declining trade efficiency. He noted that more than 70% of the country's imports enter through southern ports, particularly Umm Qasr, leaving supply chains highly exposed to any disruption in Gulf shipping lanes.
Redirecting cargo from Asian markets through Jordan's Aqaba port adds more than two weeks to delivery times while significantly increasing freight costs, insurance premiums, and logistical risks.
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The consequences quickly spread beyond trade balances and government finances. On March 3, Iraq began reducing operations at the Rumaila oil field because storage facilities were approaching capacity as tankers remained unable to transit the strait. Higher oil prices offered little relief. Although crude prices surged above $120 per barrel following the closure, according to data from the International Energy Agency (IEA), international energy expert Nawar Al-Saadi told Shafaq News that Iraq was unable to capitalize on the increase because it lacked the capacity to move sufficient export volumes. "The rise in prices did not offset the decline in exports," Al-Saadi said, noting that higher prices have limited value when production cannot reach international markets.
The Strait of Hormuz crisis exposed Iraq's dependence; the country's largest producing fields —including Rumaila, West Qurna, and Majnoon— remain overwhelmingly reliant on southern export terminals linked to the Gulf. While Iraq possesses an alternative route through the northern pipeline network to Turkiye's Ceyhan terminal, that corridor accounts for only a fraction of the country's export capacity.
For years, the Kirkuk-Ceyhan pipeline remained largely inactive because of unresolved disputes between Baghdad and Erbil over revenue-sharing mechanisms. An agreement reached earlier this year enabled the resumption of flows at approximately 200,000 barrels per day, representing an important political breakthrough but offering only limited relief when compared with the nearly 3.1 million barrels Iraq exported daily before the closure.
Al-Saadi warned that the crisis could have lasting consequences for public finances, investment, employment, and monetary stability if export disruptions persist.
According to projections by S&P Global, Iraq's real GDP could contract by as much as 15% under a prolonged export shock, while the budget deficit could widen well beyond the government's projected baseline of 7.5%, potentially forcing spending cuts, delaying public-sector salaries, and increasing pressure on the Iraqi dinar.
Despite repeated warnings dating back to the Iran-Iraq "Tanker War" of the 1980s, successive governments have failed to develop alternative export routes capable of reducing Iraq's dependence on Hormuz.
Read more: Energy war nears Iraq: Oil infrastructure faces rising threat
The experts interviewed by Shafaq News agree that diversifying export and import corridors is no longer a long-term ambition but an immediate strategic necessity. Qassi warned that disruptions linked to the strait could continue depending on the outcome of ongoing negotiations in Switzerland and broader security developments across the Gulf.
The Eco Iraq Observatory has urged the government to accelerate the proposed "New Levant" pipeline project, which would connect Basra's southern oil fields to Haditha in western Iraq with a planned capacity of up to 2.25 million barrels per day, providing an alternative outlet independent of the Gulf.
For Ahmed Eid, however, the challenge extends beyond infrastructure. He argued that reducing Iraq's vulnerability will require broader structural reforms, including modernizing the banking sector, expanding financial inclusion, strengthening access to credit, and tightening oversight of informal financial networks that operate outside the state's regulatory framework.
For decades, every regional crisis has reinforced the need for diversification. Yet as tensions subside, reform efforts have repeatedly been deferred, and the closure of Hormuz has demonstrated the cost of that delay.
Read more: Iraq’s oil bottleneck: Abundance trapped by dependency
Written and edited by Shafaq News Agency staff.
