The ongoing conflict involving Iran has severely impacted Iraq’s economy, primarily due to a blockade of the Strait of Hormuz. As a critical route for Iraqi oil exports, the blockade has led to a drastic reduction in national revenue, causing delays in government salary payments and triggering unrest among public sector workers.

Economic Impact of the Strait of Hormuz Blockade

Iraq relies heavily on oil exports through the Strait of Hormuz, with approximately 85-90% of its national budget funded by oil revenues. Since the blockade began following US and Israeli airstrikes on Iran in February 2026, Iraqi oil exports have plunged by up to 97%, severely limiting the government's monthly income.

This shortfall has directly affected the payment of salaries for thousands of public employees, including teachers and healthcare workers, many of whom have experienced delays exceeding ten days. The government requires between $6.5 billion and $8.2 billion monthly to cover salaries, pensions, and social welfare, but recent income has fallen to roughly $2 to $2.3 billion.

Public Response and Government Measures

Small-scale protests have erupted nationwide, involving university staff and ministry employees demanding timely salary payments. Despite rumours suggesting salaries might be paid every 45 days, officials have denied this, assuring the public that reserves and alternative revenues will sustain payments for up to 11 months.

Experts warn, however, that the blockade’s impact may persist until at least 2028, with fluctuations in maritime traffic expected to keep oil exports below pre-conflict levels.

Potential for Broader Instability

While current protests remain sector-specific, analysts caution that prolonged salary delays combined with other challenges such as electricity shortages and inflation could escalate unrest, threatening Iraq’s fragile stability.

Efforts to Mitigate the Crisis

  • Iraq has explored alternative export routes, including pipelines through Turkey and Syria, and plans to revive the Iraq-Lebanon pipeline.
  • Diplomatic engagement with Iran aims to secure permission for oil transit through the Strait.
  • Long-term solutions focus on economic reforms to reduce oil dependency by fostering private sector growth and combating corruption.

However, ongoing budget constraints mean most government spending remains tied to salaries, leaving limited funds for reform initiatives.

The current crisis highlights the urgent need for structural economic changes in Iraq, though the sustainability of reforms remains uncertain once immediate pressures ease.