The Iran conflict exposes Iraq’s economic weaknesses, particularly its dependence on oil revenues. Experts say Iraq economic strain forces urgent reforms and cautious policy choices.
The US-Israel-Iran war has put Iraq on the frontline. Domestic instability complicates governance as the country struggles to form a fully functional government. Analysts emphasize that Iraq’s foreign reserves can sustain the country for 12 months at 2025-level imports.
Oil revenues make up roughly 90% of government income, making Iraq vulnerable to export disruptions. Hostilities and storage limits reduced production when Iran initially blocked the Strait of Hormuz. Recent exemptions allow Iraqi oil shipments to resume, potentially opening 3 million barrels per day for export.
Experts highlight tough choices if the conflict persists. Iraq may delay payments, issue domestic debt, or seek foreign borrowing. Domestic borrowing risks inflation and currency depreciation, while foreign loans may involve IMF programs.
Internal reforms remain critical. The government must reduce public employment growth and energy subsidies, while encouraging private sector activity. The caretaker prime minister, Mohammed Shia al-Sudani, continues managing affairs until a new government is confirmed.
Alternative oil routes are under development. Iraq plans to export 250,000 barrels per day via the Kirkuk-Ceyhan pipeline to Turkey. Other proposals include pipelines to Jordan’s Aqaba port or Syria’s Latakia port. Costs run into billions, and security challenges remain high.
The conflict also affects physical production facilities in southern Iraq. International oil companies evacuated staff amid attacks and security threats. Analysts note that Iran and the US do not view Iraq as a target, which may help limit economic damage.
Despite immediate pressures, Iraq has time to adjust. Strategic use of reserves, improved internal security, and alternative export routes could stabilize oil revenues. Analysts stress that energy markets and government policies will determine whether Iraq can avoid a deeper economic crisis.