The Iraq economic outlook has become more challenging after a new forecast from the European Bank for Reconstruction and Development. The institution expects Iraq’s economy to shrink by 1.5 percent in 2026. The projection reflects growing concerns about energy supplies, oil exports, and regional instability. Analysts believe several external pressures could weigh heavily on economic activity during the coming year.
The EBRD recently updated its assessment of emerging economies across its regions of operation. According to the report, many countries may face slower growth because of rising energy costs and ongoing disruptions to global supply chains. Regional conflicts have added further uncertainty, making economic planning more difficult for governments and businesses alike.
Among the countries reviewed, Iraq and Lebanon recorded some of the largest downward revisions. The bank expects Lebanon’s economy to contract by two percent in 2026. Iraq is also likely to face a difficult year, with economic output projected to decline by 1.5 percent. These forecasts mark a notable deterioration compared with earlier expectations.
Economic challenges in Iraq stem largely from the country’s heavy reliance on the energy sector. Oil revenues generate more than 90 percent of government income. As a result, any disruption to production or exports can quickly affect public finances and economic growth. This dependence continues to expose the country to risks beyond its control.
A major concern involves restrictions on energy supplies and interruptions to oil exports. Shipping difficulties have increased because of tensions affecting regional trade routes. The closure of the Strait of Hormuz has created additional obstacles for oil shipments. Consequently, only a limited amount of cargo has reached international markets.
Iraq also faces pressure from its continued reliance on imported gas from neighboring Iran. Energy shortages can disrupt industrial activity and limit economic expansion. While inflation remains relatively low at 2.2 percent, broader economic concerns continue to overshadow this positive indicator. Policymakers must balance immediate energy needs with longer-term economic reforms.
Despite the weak forecast for next year, economists still see reasons for optimism. Many experts expect conditions to improve once trade routes stabilize and regional tensions ease. Stronger export activity could help restore growth and strengthen government revenues. Investment opportunities may also increase if market confidence returns.
The Iraq economic outlook remains uncertain in the short term, but forecasts suggest a potential recovery after 2026. Analysts believe economic growth could reach four percent in 2027. Such an improvement would depend on smoother trade flows and a more stable energy environment. For now, the Iraq economic outlook reflects both significant risks and the possibility of a stronger rebound in the years ahead.