Iraq Faces Financial Crisis as Oil Prices Plummet
Theo Al Jazeera English
Iraq's government requires roughly $8.24 billion monthly for salaries and basic obligations, but oil revenues have plummeted after exports via the Strait of Hormuz were halted. The crisis has forced officials to acknowledge severe liquidity problems and consider austerity measures, while citizens face delayed payments and rising costs.
Iraq's Health Minister, Abdul Hussein al-Musawi, recently drew attention when he told health workers that “there is no money,” a rare admission by a senior official of the financial difficulties facing the government. This marks the first time a minister has explicitly addressed liquidity issues and the priority of ensuring workers' salaries.
According to al-Musawi, Iraq's government needs about 10.8 trillion dinars ($8.24 billion) monthly to cover salaries and basic obligations, based on central bank exchange rates. Meanwhile, oil revenues are declining sharply after exports through the Strait of Hormuz were halted, exposing the fragility of an economy almost entirely dependent on oil.
Public Concern
The crisis's impact is already visible in daily life, particularly for workers awaiting salaries amid rising living costs.
Amira Ali, a government employee, said delayed salary payments have directly affected families, forcing many to postpone essential needs. Bashar Sabbar, also a government employee, noted that late salaries make it difficult for workers to meet loan payments and other non-negotiable financial obligations. He believes the effects of the Hormuz closure and the current economic crisis exceed the government's capacity, with citizens bearing the brunt.
Financial Gap
An anonymous government source said the crisis has moved beyond the warning stage as the gap between actual income and monthly spending obligations widens. Total salaries for civil servants, retirees, and social welfare recipients reach 7.8 trillion dinars ($6 billion) monthly. The government has disbursed only 3.5 trillion dinars ($2.7 billion), with the Finance Ministry adding 1.65 trillion dinars ($1.3 billion), leaving a shortfall of 3.2 trillion dinars ($2.4 billion) for the current month's salaries.
The source also noted that state income for May and June did not exceed 3 trillion dinars monthly ($2.3 billion), far below current spending, which is mostly allocated for salaries.
The Hormuz Shock
The crisis unfolds as Prime Minister Ali al-Zaidi's government proposes an economic program based on the “Development Road” project and expanding partnerships with the private sector and international companies to restructure the economy and reduce oil dependence. However, the Hormuz closure has exposed Iraq's limited coping capacity. The halt in oil exports has caused a sharp drop in revenues, alongside stalled diversification efforts for export routes through Turkey, Syria, Jordan, and Saudi Arabia due to prolonged political disputes, leaving the government facing unprecedented financial challenges.
Government spokesman Haider al-Aboudi said last Friday that the government might be forced to “borrow domestically and abroad” if the effects of the Hormuz closure persist.
Austerity Measures
Government sources said the crisis has prompted preparations for a comprehensive program to rationalize spending, after plans to expand the private sector's role stalled, mainly due to the electricity crisis. Electricity fee collection currently stands at just 14%, depriving the state of a key revenue source to fund energy projects.
The government is considering cutting the annual budget allocation for the Trade Ministry from 12 trillion dinars ($9.2 billion) to 7 trillion dinars ($5.3 billion), leading to reduced food ration items, limiting distribution to two portions per family until year-end. The plan also includes charging 4,000 dinars ($3) per ration card, reducing beneficiaries from 27 million to 20 million, and considering deferring issuance for children until age 3. The government hopes to save between 700 and 800 billion dinars annually (about $611 million).
Other belt-tightening measures under consideration include reducing wheat purchases, cutting the number of foreign diplomatic attachés, and lowering allocations to regions.
Many experts and observers argue that Iraq's situation is not merely a liquidity crisis but the result of years of oil dependence as the pillar of state finances. Every export decline directly affects salaries, services, and spending, quickly turning related crises into internal ones affecting workers and markets. With no alternative revenue sources, public finances remain vulnerable to shocks from energy markets or export routes.
