Iran war squeezes Iraq’s economy as oil revenues fall and prices rise
Disrupted oil exports, costlier imports, and a weaker dinar expose Iraq's economic dependence on oil, foreign goods.
Iraq is a state heavily dependent on imports, from food and medicines to appliances, as well as raw materials for its industries. Its one big export is oil, but it sits on such a huge supply of the natural resource that revenues from the sale of oil abroad offset the imports and ensured that the country had a positive trade surplus.
Things have changed, however, since the start of the US-Israeli war on Iran in late February, and the subsequent end to the free flow of trade through the Strait of Hormuz, through which much of the country’s trade with the rest of the world passed. Now, Iraq’s Prime Minister Ali al-Zaidi has described the country as “facing extraordinary economic challenges”.
Al-Zaidi said earlier this week that Iraq had lost about $60bn in oil revenues as a result of the war, the result of being, for a period, unable to export about 90 percent of its oil through its usual Gulf routes, which have become central to negotiations between Washington and Tehran, with the latter linking free passage through the strait to an easing of US pressure and the lifting of a blockade on Iranian ports.
At the same time, the Iraqi government is also dealing with concerns about the availability and transfer of dollars that Baghdad receives through arrangements linked to its oil revenues.