Iraq has entered ‘war economy’ as oil exports collapse, economist warns

BAGHDAD — Iraq has become the first country to enter a “war economy” as the regional conflict disrupts oil transport routes and threatens the state finances that depend on them, a prominent Iraqi economist warned Saturday.

Mahmoud Dagher, a former senior official at the Central Bank of Iraq, said disruptions to the Strait of Hormuz and attacks on tankers in Khor Abdullah have slashed Iraq’s export capacity to a fraction of its normal levels.

“In the best case, it will no longer be possible to export more than one million barrels,” Dagher said — compared with Iraq’s usual exports of around 3.5 million barrels per day. Oil accounts for roughly 90 percent of government revenue, making the export collapse an existential fiscal threat.

“Iraq is now the country that will be heavily affected if the war continues for a long time, and it is the only country that has entered a ‘war economy,'” he said.

Dagher cautioned that a full closure of the strait was unlikely given its global significance. “Twenty-five percent of the world’s oil passes through the Strait of Hormuz, so it is impossible to close this strait,” he said. “This region represents a major artery of the global economy.” With prices already around $100 per barrel, he said the disruption was beginning to create pressure on energy consumers as far as the United States and Canada.

He also signaled the conflict was far from over. “I believe measures will be taken in the coming period, and it appears the war will not end quickly,” Dagher said.

The stakes were underscored Thursday when two oil tankers were attacked in Iraqi territorial waters near Faw, killing at least one crew member and leaving others missing. Iraq’s Oil Ministry expressed “deep concern,” saying energy supply routes “must remain free from regional conflicts.” The State Organization for Marketing of Oil warned the attacks threatened maritime navigation and oil operations in Iraqi waters.

The prime minister’s financial adviser said Saturday that Iraq has roughly a two-month buffer before Hormuz disruptions begin hitting state finances directly, as oil shipments are priced after export — but warned the government may need to resort to borrowing if the disruption extends into that window.