Iraq Scrambles for Oil Export Routes as Hormuz Closure Chokes Revenue

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 lifeline and drained billions of dollars from state coffers. With roughly nine in every ten barrels of Iraqi crude previously shipped through the Gulf waterway, the blockade has left Baghdad searching for viable alternatives that experts say remain distant and impractical.

The scale of the disruption is staggering. Since the war between the United States and Iran began, Iraq has been unable to move about 90 percent of its oil through the Gulf, translating into lost revenues of approximately $60 billion. Oil receipts account for roughly 90 percent of Iraq's federal budget, meaning the sudden drop in exports has directly undermined the government's capacity to pay public sector salaries and fund basic services. The financial strain has already spilled onto the streets, with protests erupting in Baghdad as citizens feel the squeeze of austerity measures that the government has been forced to consider.

Prime Minister Ali al-Zaidi addressed the crisis on Friday during his speech at the 81st United Nations General Assembly in New York, where he voiced deep concern about the deteriorating situation in the Strait of Hormuz. He warned that the disruption to shipping and maritime freedom has triggered rising global oil prices, a development that carries profound consequences for both producers and consumers worldwide. Al-Zaidi outlined a series of proposals aimed at boosting oil production in the coming years and diversifying export routes, including expanding the existing Iraq-Turkiye Pipeline and establishing new channels through Jordan and Syria.

However, none of these proposals offer a rapid remedy. The Strait of Hormuz, which has long served as the main gateway for Iraqi oil to international markets, remains effectively closed for the foreseeable future. According to Sarmad Al-Bayati, an Iraqi political and security analyst who spoke to Al Jazeera, the lack of quick solutions represents a major problem for the country. He explained that the only current option is to export through the strait itself, which depends entirely on conditions there. Alternatives such as routes through Syria or Turkiye, or even future plans to extend a pipeline through Jordan, are unrealistic and impractical at the moment, he said, offering no genuine relief if the strait remains blocked.

In an effort to keep some oil flowing, Iraq has resorted to inefficient ship-to-ship transfers to move limited volumes out via Basra and other Gulf ports. Small boats carry cargo through the Strait of Hormuz under the protection of the United States military. Ali Nazar, head of the Iraqi Oil Marketing Organisation, known as SOMO, told a recent session in the Iraqi parliament that the country's oil export capacity stood at 4.2 million barrels in September, yet actual average exports were far lower at 2.5 million barrels. Before the crisis, Iraq was exporting 3.5 million barrels per day.

SOMO has been forced to offer steep discounts to attract buyers, with medium oil discounted by $26.5 per barrel and heavy oil by approximately $28. Despite these reductions, the company is struggling to find customers because of continued attacks on vessels transiting the strait. Nazar described the situation as extremely difficult, requiring high-level coordination with shipping companies, and noted that competition is intense, with Kuwait and Qatar offering even larger discounts reaching 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 $4.5 billion. An oil ministry source told Al Jazeera that this figure represented only oil exported from Iraq's southern oil fields that transited through Hormuz, underscoring how much of the country's normal export capacity remains offline.

Some crude continues to flow through Turkiye via the Iraq-Turkiye Pipeline, or ITP. Basra Oil Company manager Bassem Abdul Karim recently said that 250,000 barrels of oil per day were being transported by road from Iraq's southern oil fields to a storage facility in Kirkuk in northern Iraq. With sea routes still largely blocked, plans are in place to raise those volumes to 750,000 barrels. 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 Baghdad hopes will mark significant progress in diversifying its export routes.

Yet industry experts remain skeptical that these measures can compensate for the loss of Hormuz. Hassan Hafidh, a former OPEC spokesman and specialist in oil and gas affairs, told Al Jazeera that Iraq lagged far behind in finding export alternatives before the crisis began and failed to account for the possibility that it might one day lose its ability to export through the strait. He stated that all the other alternatives being discussed will not solve Iraq's export crisis and that the Strait of Hormuz remains, at the current time, the only way for Iraq to ship the quantities that secure the revenue the country needs.

The political and security uncertainty surrounding the strait shows no sign of easing. 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 at any time. For a country whose budget, salaries, and social stability are tied so tightly to oil revenues, the closure of Hormuz represents not just an economic setback but a mounting existential challenge that demands solutions Baghdad has yet to find.