BY: Shatha Kalel
In economics, crises do not begin when governments officially announce their inability to pay salaries, nor when foreign reserves fall to dangerously low levels. They begin when countries ignore the early warning signs of an approaching storm. Today, Iraq stands at one of its most economically sensitive moments in recent years, not only because of fluctuating oil prices, but also due to rapidly escalating regional challenges that threaten the country’s primary economic lifeline: oil exports.
Iraq relies on oil revenues to finance more than 85% of its state budget, making the economy highly vulnerable to any disruption in global energy markets or oil export routes. Amid rising tensions in the Gulf region and growing risks surrounding the Strait of Hormuz, Iraq faces the possibility of interruptions or declines in oil exports, a scenario that could directly affect government revenues, monetary stability, and the value of the Iraqi dinar.
The risks are compounded by the prolonged suspension of oil exports from the Kurdistan Region, which has deprived Iraq’s treasury of billions of dollars that could have strengthened public revenues and eased fiscal pressures. At the same time, the government continues to shoulder a substantial burden of salaries, subsidies, and operational expenditures, while non-oil revenues remain limited and incapable of offsetting a significant decline in oil income.
Despite these challenges, Iraq still possesses important strengths. The country maintains substantial foreign currency and gold reserves, external assets, financial securities, vast oil reserves, and a strategic geographic position connecting the Gulf region with Turkey and Europe. The core issue is not a lack of resources, but rather how those resources are managed and how quickly appropriate decisions are made before current pressures evolve into a broader financial crisis.
This highlights the urgent need for a comprehensive economic and financial emergency plan built on several parallel pillars. The first priority should be restoring oil exports from the Kurdistan Region through a temporary agreement between Baghdad and Erbil that enables the rapid resumption of oil flows. Every day without these exports represents additional revenue losses and increased pressure on the national budget.
The second pillar involves protecting foreign exchange reserves and improving dollar management. Rather than depleting reserves or selling strategic assets, Iraq can utilize modern financial instruments that provide temporary liquidity while preserving national assets. Priority should also be given to importing essential goods and production inputs while limiting luxury imports and unnecessary foreign currency transfers that drain hard currency reserves.
The third pillar focuses on increasing non-oil revenues, which still represent only a modest share of state income. Iraq possesses significant potential in customs duties, taxation, and government services. However, weak collection systems, administrative corruption, and the large informal economy continue to limit the government’s ability to fully benefit from these resources.
The current crisis should also be used as an opportunity to redirect investment toward productive sectors, particularly electricity, natural gas, manufacturing industries, transportation, and logistics. These sectors not only create employment opportunities but also reduce dependence on imports and generate greater value within the national economy.
Another area deserving special attention is the digital economy. Iraq has a large and youthful population capable of contributing to software development, digital services, e-commerce, and artificial intelligence. Given the limited availability of traditional employment opportunities, the digital economy could become one of the fastest pathways to job creation, income growth, and economic diversification.
The real danger, however, lies not only in declining revenues but also in how additional resources are utilized. If new revenues are directed toward expanding consumer spending and unproductive public employment, the crisis will likely reemerge within a short period. Conversely, if resources are invested in productive sectors, infrastructure development, and economic modernization, Iraq could transform the current challenge into a turning point toward a more diversified and sustainable economy.
Global economic experience demonstrates that nations do not prosper solely because of abundant resources, but because of their ability to manage crises and make difficult decisions at the right time. Iraq is now facing such a test. It possesses oil wealth, financial reserves, strategic geography, a domestic market, and human capital. What it needs is a clear economic vision that places investment and productivity above short-term considerations.
Ultimately, the most important question is not whether Iraq has sufficient resources to overcome the crisis, but whether it possesses the political will and institutional capacity to utilize those resources before it is too late. Time itself has become an economic factor as important as oil. The longer reforms are delayed, the greater the cost of recovery. Standing between opportunity and risk, Iraq faces a defining moment that may shape the trajectory of its economy for the next decade.
Economic Studies Unit – North America Office
Center for Linkage Studies and Strategic Research