Iraq Faces $22 Billion Deficit as Oil Revenues Plummet

Iraq faced a severe fiscal deficit of over 29 trillion dinars ($22.4 billion) in the first seven months of 2026, as disruptions in the Strait of Hormuz slashed oil revenues while government spending remained high. According to Finance Ministry data, revenue totaled 39.09 trillion dinars ($30.1 billion), with oil contributing 30.35 trillion dinars and non-oil sources adding 8.73 trillion. However, expenditures reached 68.26 trillion dinars ($52.5 billion), highlighting the strain on public finances.

The conflict in Iran severely impacted Iraq's oil exports, reducing revenue by 53% compared to the same period in 2025. Despite cutting overall spending by 11%, investment spending plummeted by nearly 80%, from 13 trillion dinars to 2.8 trillion. Current expenditures, including salaries and pensions, remained largely unchanged, consuming the majority of state spending.

The crisis intensified after the outbreak of the regional war in late February, which restricted shipping through the Strait of Hormuz. Iraq's oil exports dropped from 99 million barrels in February to just 18.6 million in March, an 80% decline. The World Bank estimated foregone oil revenue at up to $7 billion in March alone, describing the conflict as a significant loss in oil revenues.

The International Energy Agency noted that the Hormuz disruption was the largest supply shock in global oil market history, with flows falling from 20 million barrels per day to an average of 2.7 million during March, April, and May. Iraq's fiscal system, already vulnerable, faced increasing pressure on its financial buffers. Domestic public debt rose to 109.5 trillion dinars by July, while foreign reserves fell from $97.4 billion to $80.6 billion.

Looking ahead, the Finance Ministry emphasized the need for greater emphasis on non-oil revenue and fiscal discipline in preparing Iraq's 2027 budget. The government is also exploring alternative crude-export routes to reduce reliance on the Strait of Hormuz.