The closure of the Strait Of Hormuz has forced Iraq to rethink its oil export strategy — pivoting north and reviving old pipelines as global energy markets reel.
Can Baghdad avoid an economic catastrophe?
The story: Iraqi authorities are scrambling to contain a looming financial crisis as the Israeli-US war on Iran shows few signs of letting up. The effective closure of the Strait of Hormuz, Iraq’s principal maritime export route, has forced a radical cut in crude production. While Baghdad is exploring several alternate overland routes, none appear immediately viable or hold enough capacity to stave off a full-blown economic meltdown.
The coverage: Emirati outlet The National has described Iraq’s mounting challenges as a “polycrisis shock” combining economic, fiscal, political and security pressures.
- One Iraqi economic advisor has estimated that roughly 94% of pre-war exports through the Strait of Hormuz have been cut. Given that the previous average was 3.5M barrels of crude a day, monthly losses are projected to hit up to 7B USD.
- Oil export revenue funds some 90% of Baghdad’s public spending. Iraqi economist Ziyad Al-Hashemi charged to US-funded Al-Hurra that the government has “no systematic plan to deal” with such a crisis.
- Iraqi financial expert Safwan Qusay Abdul Halim has downplayed the prospect of an immediate cash crunch for Baghdad, telling Al-Hurra that Iraq’s foreign exchange reserves “exceed 100B USD” and are “sufficient” to ensure the stability of the Iraqi dinar.
Reports emerged on Mar. 17, just over two weeks into the war, that Iraq is in negotiations with Iran to allow its vessels safe passage through Hormuz. - Oil Minister Hayyan Abdul-Ghani told reporters that Baghdad is engaging with Tehran on allowing the transit of "some Iraqi oil tankers.”
- In a sign that Tehran may permit some shipping through the Strait of Hormuz, the Iranian foreign ministry in a Mar. 22 communique stated that “non-hostile vessels” would face no hindrance from the Iranian military, provided that passage is coordinated with authorities.
- The following day, on Mar. 23, caretaker Prime Minister Muhammad Shia’ Al-Sudani said any military operations geared to reopen the maritime chokepoint by force would likely backfire, emphasizing that Iraq would not participate in such an initiative.
Less than two weeks into the war, on Mar. 10, reports emerged that Baghdad had requested that the Kurdistan Regional Government (KRG) allow crude oil pumped in federal Iraq be exported through the Kirkuk-Ceyhan pipeline. The route transfers crude tapped in the Kurdistan region to Turkey’s southern coast for export.
- KRG officials reportedly responded by seeking a quid-pro-quo. Erbil reportedly sought to condition Baghdad’s use of the pipeline on Kurdish authorities retaining rights to control customs management in Iraqi Kurdistan.
- Iraqi Kurdish lawyer Rejna Alaaldin suggested in a Mar. 10 post to Twitter/X that KRG officials were “right to treat [the Kirkuk-Ceyhan pipeline] as leverage.” She further charged that Iraqi Kurdistan “cannot be treated as essential in a crisis but expendable in policy.”
The impasse shifted into a public war of words on Mar. 15, with Iraq’s oil ministry accusing the KRG of refusing to “resume [oil] exports at this time.” - Aziz Ahmad, deputy chief of staff to Kurdistan Region Prime Minister Masrour Barzani, on Mar. 15 denied that the KRG had made any “demands.” Ahmad claimed that Erbil had only proposed autonomous management of its imports under a unified national apparatus known as the Automated System for Customs Data (ASYCUDA).
Appearing to relent, Prime Minister Barzani in a Mar. 17 tweet said that due to “extraordinary circumstances” facing Iraq, the KRG would “allow oil to flow” through the Kirkuk-Ceyhan pipeline “as soon as possible.”
- Thomas Barrack, the US envoy effectively in charge of US relations with Iraq, claimed that his mediation between Baghdad and Erbil had helped to “bring temperatures down.”
- The New Arab reported on Mar. 19 that oil had started being pumped through the contested pipeline and would reach 250,000 barrels per day—far under its 400,000–450,000 barrel maximum capacity.
Notably, Shafaq News has suggested that the apparent end to the immediate contention “does not represent a final solution to outstanding disputes” between Baghdad and Erbil.
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