Hormuz shutdown could slash Iraq's oil revenues 80%

Shafaq News- Baghdad

A renewed closure of the Strait of Hormuz could slash Iraq's oil revenues by up to 80%, threatening government salaries, public services and the dinar, development and investment adviser Mohammed Al-Najjar warned, as economic experts called for reducing the country's dependence on oil.

Oil Prices and Hormuz Risks

Al-Najjar told Shafaq News that a prolonged conflict involving Iran could keep crude prices above $100 per barrel, potentially reaching $130. Higher prices would drive up fuel, food and travel costs without necessarily benefiting Iraq if exports, trade and investment remained disrupted.

A settlement, meanwhile, could bring oil prices down to around $74 per barrel and support a recovery in global growth in 2027. However, Al-Najjar warned that lower prices would also reduce Baghdad's revenue, estimating that Iraq needs oil at approximately $86 per barrel to balance its budget.

Declining oil revenue could strain government salaries and public services, while investor uncertainty could limit hiring, he said. Rising food and medicine prices would further burden households, particularly if regional disruptions affected Iranian gas supplies used to generate electricity in Iraq.

Finance Ministry figures showed that Iraq recorded a budget deficit of approximately $20.02 billion during the first eight months of 2026. Meanwhile, the International Monetary Fund (IMF) projected a 16% economic contraction this year, followed by 19% growth in 2027.

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Global Pressures and Economic Reforms

Iraqi economist Ahmed Abdul Rabbo warned that geopolitical tensions could slow global growth and increase energy, transportation and trade costs.

Arab economies face challenges involving inflation, investment and fiscal stability, he told Shafaq News, while Iraq must also contend with volatile oil revenues, high operating expenditure and risks to exports and the exchange rate.

Abdul Rabbo called for diversifying government revenue, strengthening the banking sector, expanding domestic production and building financial reserves to absorb external shocks.

Egyptian banking expert Tarek Ismail identified supply-chain disruptions and market uncertainty as major threats to the global economy, raising trade costs and complicating investment decisions and long-term planning.

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However, Ismail argued that prolonged conflicts did not necessarily justify a pessimistic economic outlook, as much depended on how governments responded.

He warned that countries signing oil contracts at elevated prices in anticipation of further escalation could face costly commitments if tensions eased and prices subsequently fell.

For Iraq, Ismail called for a long-term shift away from dependence on public spending and oil revenues toward a more diversified, productive economy.

His proposals included attracting private and foreign investment, supporting small and medium-sized enterprises, developing artificial intelligence and digital infrastructure, and expanding technical education to meet future labor market needs.

He also advocated stronger economic integration among Arab countries and greater regional investment to generate employment, particularly for young people.

Al-Najjar, meanwhile, urged Baghdad to invest any temporary increase in oil revenue in sustainable projects, including alternative export routes, tighter spending controls, improved investment conditions, and measures to reduce security risks affecting economic activity.

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