Jihad Azour, the Director of the Middle East and Central Asia Department at the International Monetary Fund (IMF), confirmed that Iraq is facing limited economic options to deal with the repercussions of the ongoing conflict. He stressed that reducing spending and temporarily resorting to dollar reserves are the current paths available until a new government is formed with the legal authority to request international funding.
Azour explained in statements that Iraq is suffering from legislative constraints that prevent it from borrowing or seeking official financial assistance in the absence of a fully empowered government. This crisis comes at a time when the Fund expects the Iraqi economy to contract by 6.8% this year, driven by a complete reliance on oil exports through the Strait of Hormuz, which is experiencing severe military tensions.
Details of the Situation
The closure of the Strait of Hormuz due to regional tensions has led to a reduction in Iraqi oil production and exports from the southern fields by nearly 80% during March 2026. The international official indicated that Iraqi authorities are currently required to manage expenditures by prioritizing commitments and essential needs, using reserves as an emergency solution to address the revenue gap.
According to the Fund's perspective, the current crisis in Iraq is not solely a result of the war but is also the outcome of years of excessive financial expansion. Azour pointed out that Baghdad was facing severe financing constraints even before the outbreak of the conflict due to overspending and weak non-oil revenues, with estimates indicating a slight contraction of 0.4% already recorded in 2025.
Context and Background
The figures reflect the magnitude of the predicament; Iraq's exports of crude oil and condensates plummeted by over 81% during last March. According to official data, exports from the central and southern regions amounted to only 14.56 million barrels, while the Kurdistan region contributed about 1.27 million barrels through the Turkish port of Ceyhan. Exports from Kirkuk via Ceyhan recorded 2.77 million barrels, marking the first time that exports from this line have occurred since the beginning of the year.
This international warning comes as the constitutional deadline for political parties to select a new Prime Minister approaches, amid intense disputes over ministerial portfolios. The financial advisor to the Prime Minister, Mohammed Mather Saleh, confirmed ongoing communication with international institutions to assess the Hormuz shock, but activating any financial support programs remains contingent on political stability and the ability to enact urgent financial legislation.
Impact and Consequences
The number of Americans filing new unemployment claims rose slightly last week, indicating continued stability in the labor market during April, despite risks arising from economic uncertainty. The U.S. Department of Labor reported that initial claims for government unemployment benefits increased by 6,000 claims to reach 214,000 claims.
So far, there are no signs of widespread layoffs due to the U.S.-Israeli war with Iran, which has disrupted navigation in the Strait of Hormuz. Reports indicate that Tehran has effectively closed the strait since the outbreak of the conflict, raising concerns about broader implications for the fragile global labor market.
Impact on the Arab Region
Concerns are growing that the economic situation in Iraq could affect the stability of the Arab region as a whole. A decline in Iraqi oil exports could increase economic pressures on neighboring countries that rely on stable oil prices. Additionally, the political and economic crises in Iraq could exacerbate instability in the region, necessitating a swift response from the international community.
In conclusion, Iraq stands at a crossroads, where the current situation requires decisive actions from Iraqi authorities to ensure economic stability and avoid exacerbating crises.