Iran war leaves Iraq running out of money

What Happened

The Iraqi government is facing a severe fiscal crisis due to a 97% decline in seaborne crude oil exports by May 2026, a direct consequence of the ongoing blockade of the Strait of Hormuz by Iran. This blockade followed military strikes against Iran by Israel and the United States in late February 2026. With 80% to 90% of Iraqi oil exports historically reliant on this route, national monthly income has plummeted to between $2 billion and $2.3 billion, failing to meet the $6.5 billion to $8.2 billion required for public sector salaries and social welfare. While the Iraqi government denies rumors of moving to a 45-day payment cycle and claims $83 billion in reserves, small-scale protests have emerged among university staff and Ministry of Electricity employees.

Key Actors

Why It Matters

The crisis highlights the extreme vulnerability of the Iraqi economy, which relies on oil exports for 85% to 90% of its national budget. Because two-thirds of the working-age population depends on the state for income, the inability to pay salaries threatens to erode recent domestic stability. Analysts warn that if salary delays coincide with electricity shortages and inflation, localized sectoral protests could escalate into a broader, nationwide anti-government movement similar to the 2019-2021 Tishreen protests.

Watch For

Monitor the success of Iraqi diplomatic efforts to secure special transit dispensation from Iran for oil exports, as well as the progress of the revived Iraq-Lebanon pipeline project. Additionally, watch for potential expansion of protests beyond specific sectors, particularly if the government fails to maintain regular salary disbursements or if public service quality deteriorates further.