Shafaq News

When Iraq temporarily closed three crossings with Iran in mid-September, the restrictions lasted only days, with trade continuing through other routes before traffic gradually returned. Even so, they offered a useful stress test for an economy whose room for maneuver depends heavily on regional stability.

The restrictions followed Saudi Arabia’s announcement that drones launched from Iraqi territory had struck its East-West oil pipeline, prompting Baghdad to tighten controls at Shalamcheh, Al-Sheeb and Mandali while investigating possible security breaches. Saudi Arabia has since resumed operations on the pipeline after a nine-day shutdown, but the episode showed how quickly a regional security incident could force Baghdad to safeguard economic channels at home.

MP Uday Al-Zamili, who represents the Wasit Al-Ajmal bil-Khadamat bloc, framed the closures in precisely those terms, telling Shafaq News that they were “military more than commercial or economic” and reflected an effort by the government to keep Iraq outside the regional confrontation and “keep the specter of war and economic sanctions away.”

Read more: Saudi pipeline attack deepens pressure on Al-Zaidi over armed factions

Keeping Iraq outside the conflict is therefore an economic as well as a security calculation, because repeated links between Iraqi territory and regional attacks could bring pressure extending well beyond temporary border restrictions.

Financial and economic expert Safwan Qusay told Shafaq News that the Central Bank of Iraq (CBI) still has sufficient room to support salaries, pensions and social welfare while defending the official exchange rate “for long periods,” adding that he sees no need to revalue the dinar.

The dollar market broadly supports that reading without removing the warning embedded in it. The parallel rate eased to around 163,000 dinars per $100 in Baghdad and Erbil on Tuesday but remained well above the official rate of roughly 1,300 dinars to the dollar, showing that the state can preserve its formal monetary anchor even as uncertainty commands a premium outside official channels.

Iraq also has alternatives if one route becomes harder to use, including the northern outlet through Turkiye as well as overland corridors capable of absorbing part of the import flow. They buy Baghdad time but cannot replace the southern system: the overwhelming share of Iraqi crude normally leaves through the Gulf, while disruption around Bab al-Mandeb would raise costs for goods moving through the Red Sea, making other routes slower, more expensive and less capable of offsetting losses elsewhere.

Read more: Iran war spreads to Iraq and Red Sea as regional risks mount

Qusay expects inflation to remain “under control” through the end of the year. “There is no option but to deal with land routes at this stage,” he said, acknowledging the higher costs involved. Iraq can absorb those costs and rely on central-bank buffers while the disturbance remains temporary; resilience becomes harder to sustain if emergency measures “must become the economy’s normal operating condition.”

Economic expert Kareem Al-Hilou told Shafaq News that Iraq enters any regional shock with structural weaknesses that short-term buffers cannot erase, with public finances still overwhelmingly tied to oil even as weak domestic revenue and limited refining capacity leave the country exposed, while an underdeveloped banking system restricts its ability to mobilize savings and credit when pressure rises.

Read more: Banking without trust: Why Iraqis still keep their money in cash

The contradiction is particularly clear in fuel, where one of the world’s major crude producers was still dealing with gasoline shortages in Basra on Sept. 19 after similar problems elsewhere, forcing parliament to press for measures aimed at preventing further supply bottlenecks.

That does not mean the recent fuel shortage was caused solely by the regional confrontation, but it does show why a longer disruption would be harder to absorb than the border closures were. An economy that already has weaknesses in domestic fuel supply has less room to treat higher transport costs or delayed imports as temporary inconveniences, particularly if the same regional crisis is also affecting the oil revenues on which government spending depends.

Al-Hilou also points to low confidence in banks and years of delayed government final accounts. Some of that backlog has begun to clear, with the 2012–2015 accounts moving through the required process and work continuing in later years, but a government preparing for a volatile oil and security environment still needs a clear view of what it has spent, collected and carried forward; fiscal planning becomes more difficult when it is still catching up with previous budgets.

The 2027 budget is therefore a key test of whether Baghdad is preparing for a more difficult economic environment. The Ministerial Council for the Economy approved the draft in September and referred it to the Council of Ministers, but as of October 6 the cabinet had not yet given final approval.

Read more: $45B deficit looms over Iraq’s draft 2027 budget

That unfinished process matters because the border closures showed that, if regional pressure persists long enough to strain monetary defenses, raise the cost of alternative trade routes, and compound weaknesses in fuel supply, banking, and public finance, Iraq’s short-term buffers could become increasingly difficult to sustain.

Written and edited by Shafaq News staff.