Iraq Forced To Borrow As Oil Revenues Dwindle

12 Jun 2026 Issue: 69 / 24 By: Yesar Al-Maleki

The collapse in revenues caused by the Hormuz closure has forced Iraq to turn to domestic borrowing to plug its fiscal gap. Reliance on internal debt could stoke inflation, and if the crisis persists, Baghdad may have little choice but to seek external financing. Compounding the pressure, Iraq faces the prospect of being added to the FATF grey list, which would mean heightened international scrutiny for its banking sector.

Iraq is facing an unprecedented liquidity crisis as its oil exports have all but collapsed. Oil accounts for around 90% of government earnings and the loss of export revenues has blown a hole in Iraq’s budget. Minister of Foreign Affairs Fouad Hussein warned on 7 June that if the Strait of Hormuz remains shut until the end of the year, the government may not even be able to pay public salaries.

Crude oil export revenues dropped from $6.8bn in February to just $1.1bn in April and will have fallen further last month, although Iraq has also been generating income from steady fuel oil exports via Syria since May (MEES, 12 June) and has managed to send some crude cargoes out through the Strait of Hormuz (MEES, 12 June). (CONTINUED - 1549 WORDS)