Due to the Iran war, Iraq is running out of money

What Happened

Iraq is facing a severe fiscal crisis as its oil exports, which account for 85% to 90% of the national budget, have collapsed due to a blockade of the Strait of Hormuz. The blockade followed strikes by Israel and the United States against Iran in late February 2026. Consequently, Iraqi seaborne crude exports dropped by 83% in March and 97% by May, leaving the government unable to meet its monthly salary and pension obligations of $6.5 billion to $8.2 billion. While the Iraqi government claims it holds $83 billion in reserves to cover payments for the next 10 to 11 months, public sector employees have already experienced significant payment delays, triggering localized protests by university staff and Ministry of Electricity employees.

Key Actors

Why It Matters

The crisis highlights Iraq's extreme economic vulnerability to regional conflict, as its reliance on oil exports through the Strait of Hormuz leaves the state budget hostage to maritime security. While current instability is limited to sectoral protests, experts warn that a sustained inability to pay salaries, combined with potential electricity shortages and inflation, could threaten the country's broader stability and revive large-scale anti-government movements.

Watch For

Monitor the frequency and scale of public sector protests, particularly if salary delays coincide with seasonal electricity shortages. Additionally, observe the success of Iraqi diplomatic efforts to secure alternative export routes, such as the revival of the Iraq-Lebanon pipeline or potential Iranian concessions for oil transit.