Iraq Oil Exports Collapse as Strait of Hormuz Closure Triggers Crisis

Iraq, OPEC's second-largest oil producer, is facing mounting economic and energy-sector pressure as the U.S.-Israel-Iran war and the prolonged closure of the Strait of Hormuz cripple its crude exports, slash government revenue, and heighten security and geopolitical risks for international oil companies.

As Iraq's domestic security situation deteriorates and the Strait of Hormuz remains shut, the country's long-standing structural vulnerability has been laid bare: more than 90% of fiscal revenue depends on crude oil exports, while nearly all southern crude shipments rely on the strategic waterway.

Before the conflict, Iraq exported around 3.4 million barrels per day (bpd) through its southern ports. With the closure of the Strait of Hormuz, those exports have effectively fallen to zero. Based on pre-war oil prices, the Iraqi government is estimated to be losing as much as $6.6 billion in export revenue per month, pushing the country toward a fiscal crisis.

The crisis underscores Iraq's 'single point of failure' in crude export infrastructure and sends a stark warning to international oil companies about severe security and systemic geopolitical risks in Iraq's upstream sector.

Iraq's Upstream Sector Shows Structural Fragility

Crude Oil Production Highly Concentrated in the Southeast

Iraq's oil and gas exploration and production are heavily concentrated in the southeast, where most of the country's giant and super-giant oilfields are located.

According to data from Rystad Energy, Basra province — home to giant oilfields such as Rumaila Oil Field, West Qurna Oil Field, and Zubair Oil Field — is expected to contribute about 2.9 million bpd in 2025, accounting for roughly 70% of Iraq's total crude output of 4.2 million bpd.

By comparison, output in other regions remains significantly smaller. Maysan province produces about 600,000 bpd; the Kurdistan region around 250,000 bpd; Baghdad, Salahuddin, and northern Kirkuk combined around 250,000 bpd; while Wasit and Dhi Qar each produce about 100,000 bpd.

Southern Maritime Exports Dominate Crude Shipments

Iraq currently has only two crude export routes — north and south — creating significant 'single point of failure' risks.

The southern route relies on port exports through onshore storage facilities and offshore loading terminals, with Basra Oil Terminal and Khor Al-Amaya Oil Terminal serving as key export hubs.

Before the war, the southern route exported around 3.4 million bpd, accounting for more than 90% of Iraq's crude exports. However, all shipments must pass through the Strait of Hormuz, and there is currently no alternative maritime route.

Aging southern port infrastructure and limited storage capacity have already pushed export facilities to saturation. Iraq had been aiming to raise southern export capacity to between 4.5 million and 5 million bpd.

Northern Pipeline Route Remains Limited

The northern route is the Kirkuk-Ceyhan pipeline, linking Iraq to Turkey's Mediterranean export hub at Ceyhan Port.

Commissioned in 1977, the 970-km pipeline was designed to transport 1.6 million bpd. Due to years of damage and underinvestment, effective capacity has fallen to about 500,000 bpd.

In March 2023, Turkey suspended pipeline flows after being ordered to pay around $1.5 billion to Iraq's federal government in a historic oil-payment dispute. The pipeline was only restarted in September 2025 after eight oil companies operating in Iraqi Kurdistan reached a preliminary agreement with Baghdad and the Kurdistan Regional Government.

Following the Strait of Hormuz closure, the Turkish pipeline has become Iraq's only route for large-scale crude exports, currently carrying about 250,000 bpd.

'Single Point Of Failure' Shocks Iraq's Oil And Gas Sector

Iraq's Crude Output Plunges

The closure of the Strait of Hormuz has caused a sharp collapse in Iraq's crude production.

According to the latest monthly oil market report from Organization of the Petroleum Exporting Countries, Iraq produced about 4.2 million bpd in January and February 2026.

Since March, as the conflict escalated and Iran closed the Strait, crude exports from the Persian Gulf were disrupted. Storage tanks near Iraq's southern ports quickly filled, forcing the government to ask oil majors including BP and CNOOC to sharply cut output at fields such as Rumaila and Maysan.

By mid-March, Iraq's crude output had plunged to around 1.2 million bpd.

Industry forecasts suggest that if a ceasefire is reached and the Strait fully reopens, southern oilfields could gradually resume operations within two months. Output may recover to nearly 2.6 million bpd in the first month and approach 3.5 million bpd after two months.

However, if the war drags on and the Strait remains closed, the recovery curve will shift significantly. Each additional month of shutdown raises the risk of permanent reservoir damage at southern oilfields, making future recovery more difficult.

Government Revenue Faces Severe Pressure

The International Monetary Fund had projected Iraq's 2026 oil export revenue at around $79 billion, based on exports of about 3.4 million bpd at the start of the year.

With southern seaborne exports halted, and assuming Brent Crude prices at $100 per barrel, Iraq is losing more than $300 million per day in export revenue.

The collapse in oil exports is rapidly destabilizing Iraq's public finances. With insufficient foreign exchange reserves, government spending, salary payments, and project execution are all under mounting pressure.

Kurdistan Region Hit Again

The Kurdistan region accounts for less than one-tenth of Iraq's crude reserves and production, and its production growth has faced repeated setbacks over the past four years.

Operators in the region include DNO, HKN Energy, and Gulf Keystone Petroleum.

Regional crude output peaked at about 420,000 bpd in the fourth quarter of 2022, but dropped to between 65,000 and 90,000 bpd after the Turkish pipeline closure in March 2023.

In March 2026, spillover from the U.S.-Israel-Iran war pushed output down again to around 120,000 bpd.

Although Turkish pipeline exports resumed on March 19, drone attacks hit HKN-operated Sarsang Oil Field, while multiple fields including Tawke Oil Field, Sarsang, and Shaikan Oil Field were shut due to attacks or security concerns.

Currently, only Khurmala Oil Field is maintaining minimum production.

International Oil Companies Face Operational Crisis

For international oil companies, the crisis is severe.

BP holds more than 600,000 bpd of equity production in Iraq, representing a major share of its Middle East portfolio and creating significant exposure.

The war has also disrupted the return of Western oil majors to Iraq.

On March 10, 2026, Iraq's cabinet approved a preliminary agreement with Chevron for the company to replace sanctioned Russian firm Lukoil at West Qurna-2 Oil Field.

At the same time, ExxonMobil was in talks with Iraq to lead development at Majnoon Oil Field.

The outbreak of war has effectively put these projects on hold, while ongoing attacks by Iran and Iraqi militias on U.S.-linked facilities and personnel add further uncertainty.

Iraq's Natural Gas Supply Under Dual Pressure

Iraq currently produces about 10.5 billion cubic meters (bcm) of marketable natural gas annually, around 70% of which comes from associated gas.

At the same time, about 18 bcm of associated gas is flared each year.

Domestic gas consumption stands at around 18.5 bcm annually, with 90% used for power generation, leaving a supply gap of roughly 8 bcm.

Iraq has long depended on imports from Iran to bridge the gap, with peak imports exceeding 40 million cubic meters per day and supplying nearly 40% of Iraq's electricity demand.

Domestic supply mainly comes from Basra Gas Company and operators such as Pearl Petroleum in Kurdistan.

The Strait of Hormuz closure and the escalation of war have dealt a double blow to Iraq's gas market.

Domestically, production cuts at southern giant oilfields reduce associated gas volumes available for processing by Basra Gas Company.

On the import side, Iran completely halted gas supplies to Iraq in December 2025, forcing Iraq's power grid to cut 4,000 to 4,500 megawatts of generation capacity.

In March 2026, Israeli strikes on South Pars Gas Field caused Iraq to lose another 3,100 megawatts of power generation until supplies partially resumed to 5 million cubic meters per day on March 21.

The conflict has not only disrupted maritime exports but also directly threatened Iraq's energy security.

Iraq Seeks To Diversify Crude Export Routes

The war and the closure of the Strait of Hormuz have fully exposed Iraq's structural dependence on crude exports and Iranian gas imports.

Even if the war ends and the Strait reopens, these deeper structural risks will remain and continue to affect Iraq's upstream investment environment.

To ease the current fiscal crisis and eliminate excessive reliance on the Strait of Hormuz, Iraq is seeking to build a more diversified export system.

First, Iraq is trying to stabilize northern production and maximize use of the Kirkuk-Ceyhan pipeline.

Kirkuk oilfield output remains at around 300,000 bpd. If other Kurdistan fields recover and companies such as DNO, HKN Energy, and GKP resume operations, pipeline exports could rise to between 400,000 and 450,000 bpd. Security risks remain the main bottleneck.

Second, Iraq is promoting crude-by-truck exports to maximize wartime shipments.

Baghdad has launched tenders to export crude via Syria's Baniyas Port and started trucking oil from central and northern Iraq to Jordan.

However, trucked volumes are limited to about 20,000 to 30,000 bpd per route and face high fuel losses, metering challenges, and attack risks, offering little relief to the fiscal crisis.

Third, Iraq is considering reviving the Kirkuk-Baniyas pipeline.

Originally built in 1950 by the pre-nationalization Iraq Petroleum Company, the 890-km pipeline to Syria's Baniyas port had design capacity of 300,000 bpd but was shut in 2003 due to regional conflict.

Reconstruction costs are preliminarily estimated at more than $4.5 billion, with a construction period of about three years.

Fourth, renewed attention is being paid to the Jordan pipeline.

The proposed 1,700-km pipeline would connect southern Iraq's oilfields to Jordan's Red Sea port with design capacity of 1 million bpd and investment of $8 billion to $9 billion.

Although first proposed in the 1980s and reapproved by Iraq's cabinet in 2024, the project remains in the planning and financing stage.

Chinese Firms In Iraq Prepare For Risks And Recovery

The U.S.-Israel-Iran war remains in a fragile ceasefire, and the future remains uncertain.

Some oilfields operated by Chinese companies continue struggling to maintain production under wartime conditions. Yet the war will eventually end, the Strait will reopen, and oil lifting and investment recovery are expected to normalize.

Under current force majeure conditions, Chinese firms in Iraq are being urged to maintain strategic confidence and seize the initiative.

Key measures include strengthening security coordination with the Chinese embassy, other Chinese enterprises, and Iraqi authorities; maintaining baseline production while controlling risk exposure; implementing defensive financial management and scenario-based budget cuts; monitoring shipping conditions closely to seize any crude-lifting window; and tightening internal controls and compliance to prepare for eventual recovery.