Iraq's 90% Oil Reliance: What It Means for Your Business

Iraq's economy continues its profound reliance on oil, with crude exports accounting for over 90% of its public revenues and a staggering 92% of the state budget (Focus-economics, Uomus.edu). This deep dependence means the nation's financial health is acutely sensitive to global energy market shifts, directly impacting public spending, investment, and your business prospects in the region.

What happened

Iraq exported more than 105 million barrels of oil in August 2024, according to the Iraqi Ministry of Oil (Iraqhorizons). Final figures from the State Organization for Marketing of Oil (SOMO) confirmed crude oil exports reached 105,845,599 barrels for the month (Iraqhorizons).

Most of these exports, 105,559,525 barrels, came from central and southern Iraq, with an additional 286,074 barrels sent to Jordan (Iraqhorizons). While these volumes reflect significant output, they underscore the nation's continued reliance on a single commodity for its income.

Why Iraq remains so dependent

Iraq's economy is fundamentally structured as a rentier state, where oil serves as the primary driver of public revenues, exports, and overall economic activity (Uomus.edu). This makes its fiscal performance inextricably linked to the unpredictable fluctuations of global oil prices.

Despite ambitions to diversify, growth in Iraq's non-oil sector slowed significantly to an estimated 2.5% in 2024, down from 13.8% in 2023 (Focus-economics). This slowdown was attributed to factors such as reduced public investment, a weaker trade balance, and persistent financing constraints (Focus-economics). Mazhar Mohammed Salih, financial and economic adviser to the Iraqi prime minister, noted that non-oil revenues currently "do not exceed 10 percent of total revenues" (Uomus.edu).

Iraq is also a key member of the OPEC+ agreement, participating in voluntary crude oil production cuts since late 2022 (Focus-economics). While the 2024 budget was based on an oil price assumption of USD 80 per barrel, any deviation from this benchmark significantly alters the nation's financial outlook (Focus-economics).

What this means for public finances and businesses

This overwhelming reliance on oil leaves Iraq's economy highly vulnerable to external shocks, from global energy market volatility to regional tensions affecting crucial transit routes like the Strait of Hormuz (Uomus.edu). For public finances, higher oil revenues typically reduce the budget deficit, while price declines exacerbate it (Uomus.edu).

Public sector wages, salaries, subsidies, and vital infrastructure projects are all heavily funded by oil revenues (Uomus.edu). The continuity of public sector salary disbursements is a key factor boosting consumer spending, affecting businesses across various sectors (Focus-economics). The 2024 budget, for instance, included increased allocations for international oil companies operating in the Kurdistan Region of Iraq, with investment funds for the region contingent on the resumption of its oil exports (Focus-economics).

For businesses, particularly those involved in imports, currency stability is critical. A devaluation of the Iraqi dinar, such as that seen in October 2026, can significantly increase the cost of imported goods, impacting consumer purchasing power and potentially fuelling inflation (Focus-economics). Fluctuations in the exchange rate also directly affect banks' cash liquidity, as a rising dollar against the dinar can lead to capital outflow (Britishjir). You can learn more about how budget decisions impact the economy here.

What to watch next

The Iraqi government is actively pursuing strategies to broaden its income streams, targeting sectors like agriculture, industry, and tourism to lessen its dependence on oil (Uomus.edu). The Ministry of Planning spokesman, Abdul Zuhra Hindwi, affirmed that Iraq "continues its efforts to increase non-oil revenues and reduce the country's dependence on oil" (Shafaq).

Key targets for diversification include increasing non-oil revenues to 79 trillion dinars by 2028 and aiming for non-oil revenues to constitute approximately 45% of total public revenues within the next decade (Shafaq, Uomus.edu). Oil revenues are projected to slightly decrease from 89% to 87% of total income between 2024 and 2028 (Shafaq).

On the oil production front, Iraq is pushing OPEC+ for a higher production baseline of 6 million barrels per day for future quotas (Iraqoilreport). The oil ministry also plans to boost crude oil production capacity to 7 million b/d by 2029 (Iraqoilreport). The gradual phasing out of voluntary OPEC+ production cuts through the end of 2026 and the anticipated resumption of the ITP pipeline to Türkiye in 2025 are also factors that could increase Iraq's oil production (Focus-economics). The Iraqi Parliament is awaiting the 2025 budget tables from the Ministry of Finance, which will offer further insights into upcoming fiscal priorities (Shafaq).

The bottom line

Iraq's economy remains profoundly shaped by its oil wealth, with over 90% of its state revenues tied to crude exports. While the government is pursuing diversification, progress is slow, leaving the nation's finances and the broader business environment highly susceptible to global oil market dynamics. Staying informed on oil price trends and Baghdad's diversification efforts will be key for anyone operating or investing in the region.

This article is for information only and is not financial advice.