The $55 floor: Iraq’s salary safety net under strain

Shafaq News

For millions of Iraqi households, the start of each month carries a single, overriding expectation: that state salaries will arrive, in full and on time. According to a 2024 report from the Ministry of Finance, more than 35 million Iraqis now depend on public wages, turning government payrolls into the country’s most dependable source of income.

At a time of tightening oil revenues, political uncertainty, and a federal budget still stalled in parliament, those payments anchor Iraq’s fragile social stability. 

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Over the past two decades, salaries, pensions, and welfare payments have hardened into Iraq’s most important safety net. 2025 Data from the Ministry of Labour and Social Affairs show that around 4.5 million civil servants receive monthly wages, alongside 2.9 million civilian and military pensioners. These numbers account for more than 40% of Iraq’s workforce —one of the highest ratios among oil-producing nations.

In practice, a single public salary often supports several dependents, including extended family members, elderly parents, and children. In Iraqi provinces where private-sector activity remains weak, these salaries circulate beyond the immediate recipient, sustaining local markets and small businesses.

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Even minor delays can force families to postpone rent, cut food spending, or defer education costs. Stability, therefore, rests less on how much people earn than on whether payments remain predictable.

Speaking to Shafaq News, financial adviser to caretaker Prime Minister Mohammed Shia Al-Sudani, Mudhir Muhammad Saleh, describes salaries, pensions, and welfare payments as “sovereign obligations” that cannot be postponed. Monthly spending on these commitments reaches about 8 trillion Iraqi dinars ($6.5B), rising to 96 trillion dinars ($78B) annually —nearly half of total federal expenditure.

“These payments give the budget an economic and social dimension beyond accounting,” Saleh remarks.

Why $55 per barrel Matters

That social contract rests almost entirely on oil. According to 2024 data released by the International Monetary Fund (IMF), oil revenues account for about 90% of Iraq’s total income.

Within this reality, Iraqi authorities have identified $60 per barrel as the critical threshold. Above it, payroll obligations can be met with careful management; below it, fiscal options narrow sharply. Heavy revenue concentration, fixed spending commitments, and limited reserves combine to make this price floor decisive.

Recent experience illustrates the dynamic. Oil prices averaging around $80 per barrel in 2024 allowed the payroll system to operate smoothly, masking deep structural weaknesses in Iraq’s economy.

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By 2025, as prices slipped to roughly $65–70 per barrel, those vulnerabilities became harder to ignore. Declining revenues, compounded by political deadlock over budget approval, pushed the government toward short-term borrowing from the central bank and state-owned banks. Contractor payments were delayed, while investment spending absorbed most of the adjustment.

Looking ahead to 2026, with oil projected at or below $55 per barrel, the payroll system faces a far tighter squeeze, testing the state’s ability to preserve social stability.

Speaking to Shafaq News, economic analyst Ahmed Eid characterizes the situation as “a deferred crisis rather than a temporary deficit.” In his view, the danger lies less in abrupt salary cuts than in the gradual erosion of public finances through borrowing, reserve depletion, and postponed reform.

The core risk, he adds, is not immediate reductions in pay but the cumulative strain created by mounting debt and delayed structural change. “Reliance on oil, bloated spending, and weak non-oil revenues turn job security into a temporary illusion and put public finances to a harsh test,” Eid observes, warning that without serious reforms tied to the 2026 budget, “today’s salaries could threaten tomorrow’s stability.”

Kurdistan as A Stress Test

The strain on salary payments is even more visible in the Kurdistan Region, where payroll dominates public spending, and revenue volatility quickly translates into social tension. In its 2024 report, the Kurdish Ministry of Finance disclosed that the Kurdistan Regional Government (KRG) pays salaries to more than 1.2 million public employees. Wages account for an estimated 70–75% of Erbil’s total spending, leaving little room to absorb shocks.

Under the Federal Budget Law, the KRG is required to deliver a specified volume of oil to the federal government in exchange for budget funding. That mechanism has repeatedly stalled amid disputes over production levels, export transparency, and revenue accounting.

When transfers are suspended or reduced, Kurdish authorities often resort to staggered or partial salary payments, stretching disbursements over weeks and intensifying public pressure.

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The latest escalation followed delays in May and June 2025 salaries. The impasse eased only after an arrangement under which the Iraqi government required the KRG to deliver all oil production to the State Organization for Marketing of Oil (SOMO). Under this framework, the KRG must export a minimum of 230,000 barrels per day, with additional production also included. In return, the Iraqi Ministry of Finance will disburse an advance of $16 per barrel —either in cash or in kind— for the quantities received, in line with the amended Federal Budget Law.

Hard Fiscal Choices

Economist Mustafa Al-Faraj warns that the 2026 budget faces mounting fiscal pressure, marked by widening deficits and rising debt. He urges the Iraqi government to set the oil price assumption in the upcoming federal budget at no less than $55 per barrel.

“As long as oil is $55, salaries are safe,” Al-Faraj states. “But if prices fall below $50, covering payroll will become a real concern.”

Cautioning that salary obligations may soon exceed what oil revenues alone can sustain, he argues that this reality underscores the urgency of genuine economic reform and credible support for the private sector, policies he noted successive governments have repeatedly endorsed in an effort to push Iraq’s economy beyond oil dependence.

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Written and edited by Shafaq News staff.