Iraq warns of financial catastrophe as oil revenues collapse amid Iran conflict

Monday 08 June 2026 - 09:01

By: Dakir Madiha

Iraq warns of financial catastrophe as oil revenues collapse amid Iran conflict

Iraq has issued a stark warning over its economic stability as oil revenues fall sharply during the ongoing regional conflict involving Iran. Foreign minister Fuad Hussein said the country could face a financial catastrophe if disruptions in the Strait of Hormuz persist due to military escalation involving the United States and Israel against Iran. The warning comes as Baghdad struggles to maintain public spending commitments that support millions of households dependent on state salaries.

Oil export data shows a severe contraction in Iraq’s revenue base over a short period. The country exported nearly 100 million barrels in February, generating around 6 billion dollars. By March, exports fell to 18.6 million barrels, reducing revenue to under 2 billion dollars. In April, volumes dropped below 10 million barrels, with earnings falling to just over 1 billion dollars, intensifying pressure on state finances.

Officials have acknowledged that Iraq has begun relying on emergency monetary measures to cover budget obligations. The government has increased its monetary issuance ceiling from 100 to 125 trillion Iraqi dinars, a 25 percent rise described internally as unsustainable. Authorities have also drawn on reserves and short-term domestic borrowing to ensure continued payment of public sector wages, which represent a critical pillar of household income across the country.

The crisis highlights Iraq’s structural dependence on oil, which accounts for roughly 90 percent of government revenue. Annual public wage and pension spending is estimated at around 70 billion dollars. With export routes disrupted, Baghdad has declared force majeure on several oil fields operated by foreign companies and is seeking alternative export corridors, including pipelines through Turkey and potential overland routes via Syria, though none can match Gulf shipping capacity.

The broader regional conflict has tightened global energy markets. The Strait of Hormuz has been effectively closed since early March following military strikes targeting Iran, pushing Brent crude prices above 90 dollars per barrel and at times beyond 100 dollars. Analysts warn that prolonged disruption could trigger further volatility, while Iraqi officials continue to emphasize the risk of losing the fiscal capacity to pay state salaries if revenues do not recover.