Iraq’s economy has deteriorated significantly since the outbreak of conflict in late February between the United States and Israel against Iran. Prime Minister Ali al-Zaidi characterized the situation as presenting “extraordinary economic challenges” for the nation.
The primary source of economic hardship stems from disruptions to shipping through the Strait of Hormuz, a critical maritime passage for Iraqi commerce. The country reported losing roughly $60 billion in oil revenues after being unable to export approximately 90 percent of its oil through standard Gulf routes during a period following the war’s onset. This represents a particularly acute problem for Iraq, as oil sales account for over 90 percent of the federal budget. The strait has become a focal point in negotiations between Washington and Tehran, with Iran conditioning restoration of free passage on relief from US pressure and a lifting of blockades on its ports.
The supply chain disruptions have cascading effects throughout Iraq’s economy. Merchants reported that goods from China now require up to three months for delivery due to increased transportation costs and the need to navigate around the Hormuz chokepoint. Prices for imported goods have risen 25 to 30 percent according to one Baghdad supermarket owner. The proportion of imported goods in his store declined from 90 percent before the war to 70 percent currently, forcing reliance on domestic products despite quality concerns.
Currency pressures have intensified the strain on Iraqi finances. The Iraqi dinar has weakened against the US dollar, with the exchange rate on parallel markets reaching approximately 1,575 dinars per dollar by the current week, compared to roughly 1,540 before the conflict began. The divergence between the official rate of approximately 1,300 dinars to the dollar and the parallel market rate has created uncertainty for businesses and increased financial burdens on consumers. Additionally, Iraq’s foreign currency reserves have contracted from approximately $106 billion before the war to roughly $80 billion by late August, according to statements from the prime minister’s financial adviser.
Economists attribute the crisis to structural vulnerabilities in Iraq’s economy. The nation’s heavy reliance on oil revenues and imported goods, combined with limited economic diversification, has left it exposed during periods of regional instability. Analysts suggest the Iraqi government faces constrained options for immediate remedial action and lacks comprehensive solutions for the deeper economic reforms necessary to address these vulnerabilities.
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