Iraq Scrambles for Oil Export Routes as Hormuz Blockade Drains Billions

Iraq is confronting one of the most severe economic challenges in its recent history as the continued closure of the Strait of Hormuz has severed the country's primary oil export artery, cutting off the lifeblood of its federal budget and forcing the government to search urgently for alternatives that experts say remain largely out of reach.

Prime Minister Ali al-Zaidi addressed the crisis before the United Nations General Assembly on Friday, telling world leaders that Iraq is watching with deep concern the unfolding situation over shipping and maritime freedom in the Strait of Hormuz, which he said has triggered rising global oil prices and placed enormous strain on his country's finances. His remarks underscored the gravity of a crisis that has left Iraq unable to ship roughly 90 percent of its oil through the Gulf, resulting in losses estimated at $60bn in oil revenues since the war between the United States and Iran began.

The numbers illustrate the scale of the damage. Oil revenues account for approximately 90 percent of Iraq's federal budget, and the sharp decline in exports has crippled the government's capacity to pay public sector salaries. The shortfall has already sparked protests in Baghdad, where citizens are feeling the effects of an economy starved of its principal source of income. The government has responded by considering a range of austerity measures to manage the deficit, though such steps remain deeply unpopular with a population already struggling under difficult conditions.

According to Ali Nazar, the head of the Iraqi Oil Marketing Organisation (SOMO), Iraq's nominal oil export capacity stood at 4.2 million barrels in September, yet actual average exports have fallen far below that figure, reaching only 2.5 million barrels. Before the crisis in the Strait of Hormuz, Iraq was exporting 3.5 million barrels per day. The gap between capacity and reality reflects the enormous logistical obstacles created by the blockade and the persistent danger facing vessels attempting to transit the waterway.

In an effort to attract buyers, SOMO has been offering steep discounts, slashing $26.5 from the price of each barrel of medium oil and about $28 for heavy oil. Even so, the company is struggling to find customers because of continued attacks on ships moving through the strait. Nazar described the situation as extremely difficult, requiring high-level coordination with shipping companies, and acknowledged that competition has become intense, with Kuwait and Qatar offering even larger discounts that reach up to $35 per barrel.

Iraqi oil ministry spokesman Salim al-Rikabi said that 70 million barrels of oil were exported from Iraq in August, generating revenues of around $4.5bn. An oil ministry source told Al Jazeera that this figure covered only oil exported from Iraq's southern oil fields that transited through Hormuz, highlighting how much of the country's normal export infrastructure has been rendered unusable by the closure.

With sea routes largely blocked, Iraq has resorted to inefficient ship-to-ship transfers to move some oil out via Basra and other Gulf ports. Small boats have been carrying cargo through the Strait of Hormuz under the protection of the US military, a makeshift arrangement that falls far short of the country's normal export capacity and exposes each shipment to significant risk.

Iraq has also continued to export crude through Turkiye by way of the Iraq-Turkiye Pipeline (ITP). Bassem Abdul Karim, the manager of Basra Oil Company, recently said that 250,000 barrels of oil per day are being transported by road from Iraq's southern oil fields to a storage facility in Kirkuk in the north. There are plans to raise those volumes to 750,000 barrels, though the logistical demands of such an increase remain considerable. Last month, Iraq and Turkiye signed a one-year extendable agreement to export at least 750,000 barrels per day through the ITP to the Turkish Mediterranean port of Ceyhan, a step that officials described as significant for diversifying Iraq's export routes.

Prime Minister al-Zaidi has suggested that boosting oil production in the coming years and diversifying export corridors could help increase government revenues. Among the possibilities he raised were developing existing channels such as the ITP or establishing new routes through Jordan and Syria. However, none of these proposals offers a quick fix to Iraq's economic troubles, particularly as the Strait of Hormuz remains effectively closed for the foreseeable future.

Iraqi political and security analyst Sarmad Al-Bayati told Al Jazeera that the absence of rapid solutions represents a major problem for the country. He noted that the only current option is to export through the Strait of Hormuz, which depends primarily on conditions in the waterway itself. Alternative routes through Syria or Turkiye, or even future plans to extend a pipeline through Jordan, he said, are unrealistic and impractical at present and offer no genuine relief if the situation in the strait remains unchanged.

Hassan Hafidh, a former OPEC spokesman and specialist in oil and gas affairs, was even more pointed in his assessment, telling Al Jazeera that Iraq had lagged far behind in finding export alternatives before the Hormuz crisis began and failed to account for the possibility that it might one day lose its ability to export through the strait. He argued that all the other alternatives currently under discussion will not solve Iraq's export crisis and that the Strait of Hormuz remains the only way for Iraq to ship the quantities of oil needed to secure the revenue the country requires.

Adding to the uncertainty, Iraqi Oil Minister Basim Mohammed Khudair told parliament last week that the situation in the Strait of Hormuz remains highly unstable and tense. With Iran and the United States no closer to reaching a deal to end the war and reopen the waterway, Iraq could face a sudden blow to its ability to export even the limited amounts of crude it currently manages to move. For a country where oil receipts underpin nearly every function of government, the continued closure of its main export gateway represents not merely an economic setback but a fundamental threat to stability.