Shafaq News
Iraq’s heavy reliance on oil revenues is putting
growing pressure on its federal budget, with price volatility exposing
long-standing weaknesses in an economy dependent on crude exports for most
state income. As global oil markets fluctuate under regional geopolitical
tensions and domestic political uncertainty, Baghdad seems to face widening
deficits and shrinking room to finance development projects.
While the problem itself is longstanding, its impact
is becoming more severe. Delays in budget disbursement, rising operational
costs, and prolonged political transitions are converging at a moment when oil
prices remain below the levels assumed in fiscal planning.
Financial and economic analysts, who spoke to Shafaq
News, say Iraq’s public finances are increasingly constrained by a growing
mismatch between projected oil revenues and actual spending requirements.
Dependence on oil for more than 90% of the state’s income leaves the budget
highly exposed to even modest declines in global prices.
Former parliamentary finance committee member Moeen
Al-Kadhimi said the three-year budget approved in 2023 faltered in execution
rather than design. “The triennial budget was not disbursed to provinces in
accordance with the law,” he told Shafaq News, describing the government’s
failure to transfer allocations as a “clear violation” of budget legislation.
Provincial funding, he stressed, is a legal entitlement based on population
ratios, not a discretionary expense.
Al-Kadhimi said persistent underfunding throughout
2023, 2024, and 2025 has stalled projects nationwide. Now in 2026, with the
formation of a new government expected to extend until late February, he warned
that delays in submitting the next budget could further deepen liquidity
pressures on ministries and local administrations.
Oil revenue projections highlight the scale of the
challenge. Al-Kadhimi estimates that if oil prices average $60 per barrel and
exports remain near 3.5 million barrels per day, Iraq’s oil income in 2026
would reach about $70 billion, equivalent to roughly 100 trillion Iraqi dinars.
By contrast, total spending requirements —including operational costs,
investment allocations, and regional development projects— would exceed 150
trillion dinars ($105B).
“This leaves a financing gap that cannot be ignored,”
he said, estimating a deficit of around 30 trillion dinars ($21B) even after
spending reductions. While the next government may seek to raise non-oil
revenues and cut unnecessary operational expenses, including high-level
government salaries, Al-Kadhimi cautioned that austerity measures alone will
not be sufficient to bridge the gap.
The strain is already evident in the investment budget
as financial expert Diaa Mohsen explained that fiscal deficits tend to hit
capital spending first, particularly in economies where non-oil revenues remain
limited.
“The general budget consists of operational and
investment components,” Mohsen told Shafaq News. “The investment side is more
complex, because projects are based on future returns that materialize only
after completion, unlike operational spending, which is non-recoverable and
represents the largest burden.”
He criticized the inclusion of large-scale projects
without adequate safeguards, such as conservative oil price assumptions or
financial buffers to absorb market downturns. With oil prices slipping below
$60 per barrel amid global oversupply, authorities have suspended or canceled
several projects, redirecting available funds toward those closest to
completion.
Read more: Deficit soars, projects freeze: Iraq heads into 2026 with NO BUDGET
In turn, oil expert Hamza Al-Jawahiri suggested that
Iraq’s outlook remains closely tied not only to domestic fiscal policy, but
also to regional developments, saying that crude prices have fallen by about $5
per barrel in recent weeks, partly due to escalating tensions between Iran and
the United States.
“Oil prices are no longer determined solely by supply
and demand … They are increasingly shaped by political dynamics and
geopolitical interventions.”
Al-Jawahiri warned that the region is “on the edge of
a wider conflict,” a scenario that could drive prices sharply higher or cause
severe disruptions. Any closure of the Strait of Hormuz, he said, would amount
to an economic catastrophe not only for Iraq but for global markets,
underscoring the vulnerability of Baghdad’s oil-dependent revenue model.
That vulnerability was echoed by Furat Al-Moussawi,
head of the Iraq Energy Center, who described oil price fluctuations as “direct
economic shocks” to the Iraqi state. Each one-dollar change in oil prices, he
noted, translates into billions of dollars gained or lost annually, leaving
budget planning hostage to external forces.
Al-Moussawi illustrated the contrast starkly: at $80
per barrel and exports of around four million barrels per day, Iraq could
generate more than $115 billion a year. At $50, revenues would fall to roughly
$72 billion, a loss of about $43 billion in a single year. Such swings, he
said, directly threaten the government’s ability to pay salaries, maintain
services, and sustain development spending.
Despite differing emphases, analysts converge on a
single conclusion: Iraq’s fiscal fragility is rooted in its failure to
diversify. Continued reliance on oil leaves the budget exposed to decisions by
major producers, shifts in global demand, and regional crises beyond Baghdad’s
control.
Meaningful reform, experts argue, must prioritize
expanding non-oil revenue streams, investing in associated gas capture, and
developing renewable energy projects to reduce pressure on crude exports.
Without such steps, the budget will remain reactive rather than strategic,
reshaped each year by market shocks instead of long-term planning.
Written and edited by Shafaq News staff.
