{"id":107708,"date":"2026-05-11T04:26:09","date_gmt":"2026-05-11T04:26:09","guid":{"rendered":"https:\/\/www.europesays.com\/iran\/107708\/"},"modified":"2026-05-11T04:26:09","modified_gmt":"2026-05-11T04:26:09","slug":"iraqs-pm-designate-confronts-worst-fiscal-crisis-in-decade-after-iran-war-oil-shock","status":"publish","type":"post","link":"https:\/\/www.europesays.com\/iran\/107708\/","title":{"rendered":"Iraq’s PM-designate confronts worst fiscal crisis in decade after Iran war oil shock"},"content":{"rendered":"

Ali Al Zaidi, Iraq’s prime minister-designate<\/a>, is inheriting an economy<\/a> in free fall with the Iran war and oil supply collapse, as well as Washington’s pressure on Baghdad, exacerbating long-delayed structural reforms.<\/p>\n

Oil revenue, which funds 90 per cent of Iraq’s government income, has declined by more than 70 per cent since the war began on February 28. Baghdad’s monthly oil revenue dropped from $6.8 billion in February to $1.96 billion the following month, according to Iraqi sources. <\/p>\n

Baghdad exported 3.5 million barrels a day before the war and now transports around 300,000 bpd through the Kurdistan-Ceyhan pipeline, the only viable export route Iraq has. <\/p>\n

The drop in oil revenue is set to hit the economy hard. The International Monetary Fund’s April regional outlook forecasts Iraq’s economy will contract by 6.8 per cent this year, a downwards revision of more than 10 percentage points from the October forecast \u2013 the steepest drop among directly affected oil exporters in the region. <\/p>\n

Iraq, Opec’s second-largest producer, has suffered the biggest supply decline among members, with output falling 66 per cent since the war began. The severity reflects structural failures that predate the conflict. <\/p>\n

Inadequate storage capacity resulted in Iraq advising operators of its large southern fields, such as Rumaila and Majnoon, to shut in production after tanks filled up quickly. \u201cThe reason why we cut down production more than anybody else is we haven’t invested in our infrastructure, we don’t have that much storage space,\u201d said Ahmed Tabaqchali, chief investment officer of AFC Iraq Fund.<\/p>\n

Even if freedom of navigation is restored in the Strait of Hormuz, through which a fifth of the world’s oil flowed every day before the crisis, Iraq’s recovery will be slower than most. Foreign workers evacuated from oilfields have not returned and no repatriation plan has been announced. <\/p>\n

\u201cThere should be certainty about the availability of tankers to load, especially for Iraq, given its storage constraints, otherwise, production will continue to struggle to return to normal,\u201d said Noam Raydan, senior fellow at the Washington Institute for Middle East Policy. \u201cEven if workers return and you don’t have enough tankers to load, production will remain uncertain.\u201d <\/p>\n

The International Energy Agency estimates oil exports could take at least two months to return to normal after Hormuz reopens. For Iraq, a big supplier of Basra heavy crude to Asia, recovery could take longer still.<\/p>\n

Finding alternative export routes will take time. Iraq committed $1.5 billion towards a pipeline to the Jordanian port of Aqaba, and the Kirkuk-Ceyhan line could eventually reach 600,000 bpd capacity. <\/p>\n

This month, the Iraqi Oil Ministry said it was allocating $1.5 billion towards building a pipeline linking oil produced in Basra in the south to Haditha<\/a>, north-west of Baghdad, which would then allow for pipeline exports through Jordan and Turkey.<\/p>\n

Iraq has yet to feel the full blow of the Hormuz crisis but the clock is ticking for Mr Al Zaidi. Oil revenue is received with a two to three-month lag, meaning March and April wages will be covered by pre-war sales. <\/p>\n

The government is expected to borrow by issuing Treasury bills to state banks, which are in turn absorbed by the central bank, the same mechanism used during the 2020 oil price crash. <\/p>\n

\u201cThe wages should be OK for a few months, as long as the government can borrow,\u201d said Mr Tabaqchali. The risk is inflation from debt monetisation. Iraq’s true reckoning could come by early to mid-2027 should the disruption continue, he said.<\/p>\n

Iraq holds around $100 billion in central bank reserves spread across international institutions but these are matched by domestic monetary liabilities, including a huge draw for wages to government workers. <\/p>\n

Unlike Gulf neighbours with sovereign wealth funds running to the trillions, Baghdad has no such cushion. \u201cWe spend every penny we have,\u201d said Mr Tabaqchali. Washington’s suspension of physical dollar shipments has added to the pressure, though the flows represent only around 7 per cent of Iraq’s currency needs. \u201cIt makes no difference in the economy,\u201d Mr Tabaqchali said. <\/p>\n

The more consequential risk, flagged by Iraqi Central Bank officials, would be if the US were to restrict international transactions covering import payments.<\/p>\n

The US has also escalated its pressure through sanctions. The US Treasury last week designated<\/a> Iraq’s deputy Oil Minister, Ali Maarij Al Bahadly, accusing him of abusing his position to divert Iraqi petroleum to be sold on behalf of Iran and its proxy militias. Three senior leaders of Iran-backed militia groups Kata’ib Sayyid Al Shuhada and Asa’ib Ahl Al Haq were also sanctioned. <\/p>\n

The US has set clear conditions for resuming dollar shipments and unlocking broader financial engagement. This includes removing US-designated armed groups from the cabinet and including a militia disarmament commitment in the government programme. <\/p>\n

\u201cWhat is unclear is whether the US will accept ‘intentions’ regarding disarmament as a sufficient threshold,\u201d said Tamer Badawi, associate fellow at Rusi, a British think tank. With prime ministers-designate given 30 days to form a cabinet, wild-card scenarios could slow the process and the US may wait until Mr Al Zaidi is sworn in before making any statements of support.<\/p>\n

The longer-term fix is an IMF programme, which would unlock conditional financing. A $3.6 billion deal in 2016 catalysed nearly $20 billion in financing support for Iraq. \u201cI have no doubt that discussions would have started,\u201d Mr Tabaqchali said. <\/p>\n

Mr Al Zaidi’s ability to form a cabinet that satisfies both domestic stakeholders and Washington is the prerequisite for any programme to advance. It also remains to be seen if he will advance structural reforms that successive Iraqi governments have stalled on. \u201cThe main issue will remain the political will,\u201d said Mr Badawi.<\/p>\n

Sinan Mahmoud in Baghdad and Kyle Fitzgerald in Washington contributed to this report.<\/p>\n","protected":false},"excerpt":{"rendered":"Ali Al Zaidi, Iraq’s prime minister-designate, is inheriting an economy in free fall with the Iran war and…\n","protected":false},"author":2,"featured_media":107709,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[14],"tags":[1140,154,897,21299,94,213,274,273],"class_list":{"0":"post-107708","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-iraq","8":"tag-business-team","9":"tag-energy","10":"tag-gas","11":"tag-imf","12":"tag-iraq","13":"tag-oil","14":"tag-standard","15":"tag-story"},"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@iran\/116554051325065066","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/iran\/wp-json\/wp\/v2\/posts\/107708","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/iran\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/iran\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/iran\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/iran\/wp-json\/wp\/v2\/comments?post=107708"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/iran\/wp-json\/wp\/v2\/posts\/107708\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/iran\/wp-json\/wp\/v2\/media\/107709"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/iran\/wp-json\/wp\/v2\/media?parent=107708"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/iran\/wp-json\/wp\/v2\/categories?post=107708"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/iran\/wp-json\/wp\/v2\/tags?post=107708"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}