Iraq’s oil sales hammered by Strait of Hormuz crisis as revenues collapse 84%

Iraq’s Prime Minister confirmed what the numbers have been screaming for months: the country’s oil sales have taken a devastating hit from the US-Iran crisis choking the Strait of Hormuz. For a nation that derives roughly 90% of its government revenue from crude exports, that’s not just bad news. It’s an existential fiscal problem.

Iraq’s oil production cratered from an average of 4.3 million barrels per day before the conflict to approximately 1.4 million bpd after the strait’s disruption began. Monthly oil revenue followed the same cliff dive, dropping from $6.8 billion in February 2026 to just $1.1 billion by April. That 84% revenue collapse has forced Baghdad into a financial firefight on multiple fronts.

The chokepoint that broke Iraq’s budget

The Strait of Hormuz is the narrow waterway separating Iran from the Arabian Peninsula, and roughly 20% of global oil supply passes through it on any given day. When the US-Iran conflict escalated on February 28, 2026, tanker traffic through the strait faced closures and severe restrictions. Iraq, despite sharing no coastline with the strait itself, routes a significant portion of its southern crude exports through those waters.

The result was swift and punishing. At the lowest point, Iraqi oil exports dipped to just 200,000 bpd, a fraction of the country’s capacity and barely enough to keep the lights on financially.

The IMF responded by forecasting a 6.8% economic contraction for Iraq.

To cover government spending and public sector salaries, Iraqi officials turned to the central bank’s reserves. Those reserves fell from approximately $102 billion at the start of the conflict to around $86 billion by late June 2026. That’s $16 billion drained in roughly four months.

Workarounds and partial recovery

Iraq didn’t sit still. By September 2026, the country’s exports climbed back above 3 million bpd through a combination of alternative routes and creative logistics. Pipeline capacity through Turkey, while politically complicated due to longstanding disputes over the Iraq-Turkey pipeline, offered one avenue.

The recovery wasn’t free. Iraq reportedly incurred significant transit fees to Iran as part of its efforts to restore export volumes, contributing to the $16 billion drawdown in central bank reserves.

Still, the rebound from 200,000 bpd to over 3 million bpd represents meaningful progress. The gap between that figure and the pre-crisis 4.3 million bpd output, however, tells the story of a sector still operating well below potential.

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