By : Shatha kalel
Iraq possesses some of the world’s largest oil reserves, and a substantial part of its financial capacity depends on the millions of barrels it produces every day. Yet the recent crisis in the Strait of Hormuz has exposed a dangerous paradox: possessing oil does not necessarily mean possessing the ability to turn it into revenue. Between the oil well and the state treasury lies a long chain that begins with production, passes through pipelines, ports, tankers, insurance, and maritime corridors, and ends with the oil reaching the buyer and dollars flowing into the Iraqi economy. When one of the essential links in this chain is disrupted, the resource that represents the economy’s greatest source of strength can become one of its greatest vulnerabilities.
For this reason, the Iraqi Ministry of Oil’s announcement that average crude exports during September stood at approximately 2.6 million barrels per day should not be viewed merely as an oil statistic. Rather, it should be seen as an indicator of a broader economic test facing Iraq. The ministry clarified that reports of exports exceeding four million barrels per day referred to a single exceptional day when several loading operations coincided, rather than to a sustainable export rate. Before disruptions to shipping through the Strait of Hormuz, Iraqi exports were running at approximately 3.3 to 3.5 million barrels per day. This means that the current recovery is significant, but the export system has not yet returned to its previous level.
The more serious problem is not the amount of oil beneath Iraqi soil, but the geography separating Iraqi crude from global markets. Iraq depends heavily on its southern ports and the Gulf, making the Strait of Hormuz an integral part of the country’s economic and financial security. As maritime traffic has been disrupted, the number of vessels passing through the strait has fallen sharply compared with pre-conflict levels. Reuters, for example, reported a tanker carrying two million barrels of Basra crude transferring its cargo off Fujairah to another tanker bound for China. Such operations allow part of the trade to continue, but they also demonstrate how much more complicated a process that was previously more direct and less costly has become.
Shipping costs have also risen exceptionally across the region. Iraq’s oil minister said the cost of transporting crude had increased from approximately $26 to $37 per barrel. There is a public Iraqi-Saudi dispute over the explanation for some of this increase. Riyadh rejected an Iraqi claim concerning its purchase of tankers and attributed higher transportation costs to factors including the war, disruption to maritime traffic, and increased risk. It is therefore difficult to attribute the increase to one factor alone, but the economic outcome is clear: getting each barrel to market has become more expensive.
This is where the real challenge for Iraq’s public finances begins. Higher global oil prices do not automatically mean that Iraq is the biggest beneficiary, because what matters to the treasury is not simply the headline price of a barrel, but the net amount remaining after transportation, insurance, discounts, and logistical disruptions are taken into account. The more expensive it becomes to deliver crude, or the smaller the volume that can actually be exported, the smaller the benefit captured by the state.
The issue becomes even more sensitive in an economy where public finances depend heavily on oil revenues. A shock that begins in a maritime strait can gradually move into the government budget, public liquidity, spending, investment, and ultimately the wider economy. The export crisis should therefore not be treated solely as a problem for the Ministry of Oil. It is simultaneously a fiscal, monetary, and development challenge.
More concerning still, the shock exposes the difference between production capacity and export capacity. Iraq can increase production, but a barrel that cannot reach its buyer on time cannot generate the expected revenue. If the bottleneck persists for an extended period, companies and oilfields may eventually have to adjust production to available storage and export capacity. At that point, the crisis moves from transportation into production itself.
This equation demonstrates that genuine oil security cannot be measured solely by the number of barrels a country can extract each day. It must also be measured by the number of independent routes capable of carrying those barrels to international markets.
This explains why Baghdad has begun looking more seriously for alternative outlets. In September, Iraq launched a trial operation to transport crude oil by truck from southern fields to storage facilities in Kirkuk, with the aim of increasing the volumes available for export through Türkiye’s Ceyhan port. During the first two days of the trial, 209 trucks transported more than six million litres of crude.
However, trucking cannot easily replace maritime exports measured in millions of barrels per day. The operation faces constraints involving the number of available trucks, loading capacity, roads, and logistics. This in itself carries an important economic message: a genuine alternative to a strategic export corridor requires strategic infrastructure, not merely emergency solutions.
From this perspective, northern routes through Türkiye and proposed projects toward other outlets become more than oil infrastructure projects. They represent a form of insurance policy for the Iraqi economy. The Ministry of Oil has already discussed plans to expand future export capacity through strategic pipelines toward Fishkhabur and Banias alongside existing outlets.
But announcing alternative routes is one thing; transforming them into large, reliable, and sustainable operating capacity is another. Doing so requires financing, political agreements, security, infrastructure, and the ability to operate continuously for years rather than only during periods of crisis.
The current crisis should also push Iraq to confront a more difficult question: Why does the stability of an economy the size of Iraq’s remain so closely tied to the export route of a single commodity?
Diversifying oil export outlets is necessary, but it does not address the underlying problem on its own. If the state budget, dollar inflows, and broader economic activity remain heavily dependent on crude oil revenues, creating three oil export routes instead of one may reduce geographical risk, but it will not eliminate the economic risks associated with oil dependence itself. Diversification of export routes must therefore proceed alongside diversification of government revenues, domestic production, and non-oil exports.
What is happening in the Strait of Hormuz, therefore, is not simply a temporary maritime disruption. It is an early warning for the Iraqi economy. Iraq possesses the resource, but it also needs freedom of movement. It needs a strong southern corridor, a northern route capable of handling significant volumes, and strategic alternatives that can be activated during crises. At the same time, it needs an economy whose ability to spend and grow does not falter whenever a tanker is delayed or a maritime corridor is disrupted.
Oil beneath the ground represents wealth, but only oil that reaches the market safely and at a reasonable cost becomes revenue. When an entire economy depends heavily on a single corridor to deliver its principal source of wealth to the world, that corridor effectively becomes part of the state budget, the value of the currency, and the country’s economic security.
And herein lies the most serious message revealed by the crisis: the danger is not that Iraq will run out of oil, but that it may possess the oil without always possessing a secure route to deliver it to the world.
Economic Studies Unit | North America Office
Al-Rawabet Center for Research and Strategic Studies