هذا التقرير متاح أيضًا بـ العربية
Iraq’s economic crises did not erupt overnight. They are the product of decades of neglect, disorder, and the absence of scientific planning. They are the result of sweeping chaos that has battered the Iraqi landscape in its entirety, rather than being confined to one sector over another.
Even so, the economic sector the backbone of the state and the clearest indicator of the success or failure of its policies remains dominant in public debate and takes precedence in dealing with the country’s various political and security files.
The Iraqi economy cannot be described as a fully “capitalist” market economy, nor do its defining features correspond to the traditional concept of a socialist economy. It is not even a balanced blend of the two, as is the case with the Chinese economy or some of the economies of emerging countries that have shaken off the legacy of decades of socialism.
The Iraqi economy is a rare and exceptional case unlike any other in the region or the world, as the yardstick of planning has been absent from it for long decades. Since Iraq entered its long war with Iran in 1980, its economic capacities were drained and the country’s various resources were harnessed to finance the war effort and keep the fronts standing. This was followed by the invasion of Kuwait and the unjust international embargo that came after it, paralyzing every pillar of the Iraqi state and not merely destroying the structure of its economy.
By the time the year of the US invasion arrived in 2003, the Iraqi economy was on its last legs, ushering in yet another phase of absent planning and haphazard action, until the country which lies atop vast oil fields was transformed into one of the countries that can be described as poor when measured by the income level of the average Iraqi citizen, which reached $5,409 annually according to indicators from the World Bank Group. That is a low figure given Iraq’s oil output of 4 million barrels per day.
Amid this bleak landscape, the government of Ali al-Zaidi came to power after the wrangling that followed the November 2025 elections, only to find itself hemmed in by a large number of these problems, which appear set to become its greatest obstacle. Either the businessman succeeds in overcoming part of them, or they may end up writing an unhappy ending for a government that many Iraqis still see as the “last hope.”
Oil: The production dilemma … and the export dilemma
Iraq depends heavily on oil. Some estimates indicate that about 90% of the country’s revenues come from oilwith exports amounting to about 4 million barrels per day, making the entire country’s economy hostage to fluctuations in oil conditions and prices in a region that has been sitting on a powder keg for decades. Caught in a cycle of one war after another, it has been scorched by instability, prompting many oil-producing countries whose economies were built on crude to try to break out of this bottleneck and diversify their sources of revenue something Iraq, still emerging from the furnace of its seemingly endless conflicts, has not yet been able to do.
The crisis over the closure of the Strait of Hormuz exposed the catastrophic state of the Iraqi economy, which depends heavily on exporting its most important commodity oil through the strait, as Iraq exports about 85 percent of its oil through Hormuz, a reality that reverberated across the Iraqi economy as a whole, coinciding with Iran’s closure of the strait after the outbreak of the US-Israeli war against it at the end of February.
This catastrophic situation caused by the closure of the strait pushed Iraq to consider alternatives and search for other outlets to export its oil a step long overdue amid internal political wrangling that had blocked this option for years. It stalled an Iraqi project to extend an oil pipeline from Basra to Jordan’s Port of Aqaba, while disputes that overshadowed relations between Iraq and Syria after the fall of Bashar Assad’s regime prevented the activation of the Iraqi oil pipeline through Syria’s Baniyas.
Meanwhile, the Ceyhan pipeline from northern Iraq to Turkey remained vulnerable to ongoing disputes between Baghdad and Erbil over the region’s share of the federal budget and Baghdad’s efforts to gain control over oil revenues exported by the region without entering the Iraqi state treasury.
The grim reality surrounding oil flows through Hormuz, which does not appear likely to be resolved anytime soon, prompted the Iraqi government to lay the first building blocks for a “rerouting” of oil exports through other outlets, as announced in a government statement in early June, in an attempt to make up for the massive shortfall in financial revenues caused by the closure of Hormuz, with the aim of reaching more than 1 million barrels a day in exports via pipelines.
Until then, Iraqi oil shipments transported overland began passing through Syria to the Port of Tartus as a temporary solution that could help ease the tightening stranglehold on Iraq’s economic sector, which some estimates indicate has lost about $37 billion as a result of the closure of the Strait of Hormuz.
Digging through the old files also pushed Ali al-Zaidi’s government to search for other outlets better able to accommodate the current and coming phase, especially amid challenges that have begun pressing on the daily lives of Iraqi citizens. That made it necessary to consider the Iraq-Saudi oil pipelinewhich runs from the city of Al-Zubair in southern Iraq to the port of Yanbu on Saudi Arabia’s Red Sea coast. Operations on it have been suspended since 1990. It stretches about 1,568 kilometers and has an operating capacity of about 1.6 million barrels per day.
All of these options will remain emergency measures unless they are accompanied by a clearly defined government plan capable of managing the economy through action and reaction, as was the case with Mohammed Shia al-Sudani’s government, which ended its term by trying to increase revenues through maximizing state resources, using taxes and higher customs tariffs as a means to achieve that.
Customs tariffs … will they continue?
As of the beginning of last January 2026, the previous government headed by Mohammed Shia al-Sudani decided to implement the new customs tariff at a rate of 15 percent, prompting many traders and businesspeople to warn of the repercussions of this decision on the lives of ordinary citizens, even though the government said its decision to raise customs tariffs would not include essential goods that affect people’s daily lives.
Although this measure carried a theoretical regulatory and economic rationale, its implementation in a country that imports more than 85 percent of its consumer and food needs created an inflationary shock in the local market.
High customs duties, alongside rampant corruption at some border crossings and administrative bureaucracy, caused sharp spikes in the prices of foodstuffs, medicines and construction materials.
This increase pushed vulnerable and middle-income groups to the brink of economic hardship, sparking a broad wave of discontent against the government’s financial policies and making the task of al-Zaidi’s current government center on trying to rebalance these duties and ease living burdens without sacrificing tax reform plans.
The dinar and the dollar … survival of the fittest
There is no way to talk about deferred or accumulated crises in Iraq without passing through the dinar-dollar dichotomy. In a country that emerged from the furnace of wars and sanctions only to enter the black hole of corruption, there is no room to speak of the luxury of exchange rates.
Although the government decided to set the dollar exchange rate at 130 Iraqi dinars, you will not get that rate except through official outlets, and only if there is a reason for it namely travel. Every citizen has the right to buy dollars at the official rate, provided the value of their purchases does not exceed $2,000, in an attempt to curb dollar smuggling abroad.
But outside official banking institutions, the dollar rate is no less than 150 Iraqi dinars, a numerical margin within which many beneficiaries, travel companies and hard-currency smugglers have operated.
Ali al-Zaidi stands at a crossroads: he is being pressed “by the United States” to put an end to dollar smuggling, specifically to Iran. At the same time, he lacks the institutional capacity needed to confront the “big fish” of corruption, who own numerous banks and companies and are deeply embedded in every part of the state.
They wield political, financial and even military influence that obstructs any serious move against them, in addition to the fragility of Iraq’s economic situation and the scarcity of dollars, which is tied in the first place to what the US Federal Reserve transfers each month from Iraqi oil export revenues, which first go into US coffers.
Al-Zaidi, who comes from an economic background as a businessman, is trying to automate the banking system and channel Iraqi trade through approved banking channels recognized by the United States, while opening up to the US Treasury Department and demonstrating seriousness in dealing with corruption cases, especially those related to dollar smuggling, as happened in the arrest of dozens of politicians and businessmen at the end of last June in the operation that has come to be known as “Dawn Raid”.
These measures, even if they appear necessary, will not directly put money back into the Iraqi citizen’s pocket. The dollar and the dinar’s exchange-rate stability against it require measures that first and foremost strengthen confidence in the government’s steps steps that are still viewed with doubt and suspicion, especially since they have yet to reach many of the major players controlling the market through corruption channels too numerous to count.
The militias’ economy … a road strewn with land mines
The militias’ economy has remained one of the most prominent problems suffered by previous Iraqi governments. They know full well that this file is too complex to be tackled or even discussed. Here, you are talking about militias that hold the reins of politics, bring in the prime minister and approve his Cabinet lineup through their political arms, while at the same time serving as one of the arms of the corruption rampant in the country.
Ali al-Zaidi understands that dealing with the militias’ economy is complicated, but this time he is being asked to do what others failed to do or chose to ignore. Otherwise, Iraq will face even greater political and economic isolation an isolation that al-Zaidi and his government team understand would be the coup de grâce not only for his government, but for the entire political process that began after the US invasion of Iraq in 2003.
The problem with militias is not only their weapons, which threaten the state’s very existence under an external allegiance that does not recognize the legitimacy of national sovereignty, but also the enormous economic power they have come to represent. It is enough to note here that the returns from most projects carried out in Iraq ultimately go to the armed militias through a division of financial influence that closely resembles the division of military influence.
Faced with the dual power of money and weapons controlled by the armed militias, al-Zaidi finds himself hemmed in. He is therefore trying to untangle this complex landscape. The path that could lead to dismantling militia weapons and confining them to the hands of the state begins with money and with curbing the economies of those factions, which, even if they often appear aligned with the plan to restrict weapons, also understand at the same time that losing their weapons could mark the beginning of losing their money.
For that reason, they deal with clear caution toward any proposal related to restricting weapons, even when most of them though not all express supportive positions.
This leaves al-Zaidi’s task fraught with the risk of sliding into a confrontation he does not want with those militias, especially if his hand reaches the source of their strength: money.
Employment … Unemployment in Government Garb
Some estimates indicate that the number of public-sector employees in Iraq before 2003 did not reach 800,000, excluding the military and armed sectors. But by the end of 2025, some estimates said that the number of public-sector employees had reached 5 million, while the number of people receiving salaries had risen to 9 million citizens after including retirees and those covered by social welfare. This means that 60 percent of Iraq’s budget goes to wages for public-sector employees, and the figure is rising.
The employment problem in Iraq represents another challenge for Ali al-Zaidi’s government. What is required is not only to halt hiring in the public sector because of the bloat and disguised unemployment it causes, but also to address the numbers already in the public sector, which place a heavy burden on the state’s economic resources.
At the same time, the government is seeking to open new avenues for Iraqi youth to work outside the government sector by revitalizing the private sector, which still suffers from the constraints of laws and the lack of confidence that would encourage investors to enter the Iraqi market.rnrn
The Solution Lies in “Dissolution”
Ali al-Zaidi faces a complex and accumulated economic reality that cannot be resolved through piecemeal measures or emergency fixes.
The crisis is not in oil alone, nor in the exchange rate, nor in customs tariffs, but in a distorted economic structure that combines excessive dependence on a single resource, parallel economic influence outside the state’s control, and an oversized public sector that obstructs reform.
The success of al-Zaidi’s government hinges on its ability to deal with the “militia economy” as a fundamental entry point for any genuine reform, because this parallel economy constitutes the greatest obstacle to restricting weapons and rebuilding state institutions.
Any attempt to diversify sources of income or revitalize the private sector will also remain limited in impact unless it is accompanied by bold measures to combat financial and banking corruption.
Al-Zaidi has an economic background that may help him grasp the complexities of these issues, but he lacks sufficient political cover and the institutional tools needed to confront entrenched networks of vested interests.
While many Iraqis view his government as the “last hope,” allowing the current situation to persist without deep structural reforms could turn that hope into yet another disappointment, once again confirming that Iraq’s economic crises are not waiting for a “magic wand” but require strong political will and painful decisions that have yet to materialize.