Iraq’s Economy on Edge Due to High Oil Income Dependence
Iraq is on the brink of an economic breakdown as OPEC’s second-largest producer continues to rely mostly on oil exports for federal government revenues, analysts warned on Monday after official data showed that oil represents a whopping 91% of all federal budget revenues.
Iraq’s federal revenues topped $107 billion (140 trillion Iraqi dinars) last year, data from the Ministry of Finance showed this weekend. But oil accounted for more than 91% of all federal government revenues, according to the finance ministry.
Iraq has long been one of the petrostates most dependent on oil revenues as a proportion of budget revenues, and economists have called for decades for diversification as a way to reduce the exposure of the country’s finances to the volatile oil prices.
According to the International Monetary Fund (IMF), Iraq’s dependence on oil revenues has worsened, and the oil price required to balance the budget jumped to around $84 per barrel in 2024, up from $54 a barrel in 2020.
“These challenges have been exacerbated by the sharp decline in oil prices in 2025, requiring an urgent policy response,” the IMF said last month.
“More broadly, a sizable fiscal consolidation is needed to mitigate macro-fiscal risks, ensure debt sustainability, and rebuild fiscal buffers.”
Iraq’s budget revenues show structural vulnerabilities, economic expert Mohammed Husseini told the news outlet Kurdistan24 on Monday.
“The government remains trapped under the weight of economic mismanagement and high unemployment, blocking any meaningful development or growth,” Husseini said.
“To ensure long-term economic stability, Iraq must diversify its revenue streams, reduce public expenditures, and respond to fiscal deficits more effectively.”
Iraq has been struggling with oil dependence for decades and with the Kurdistan issue for years.
Last week, Iraq’s federal government said that it holds the Kurdistan Regional Government (KRG) legally responsible for continued oil smuggling operations from Kurdistan outside Iraq.
The federal government in Baghdad and the regional Kurdish government in Erbil have been at odds for years about who should be responsible for the oil exports and the subsequent revenue distribution.
The federal authorities say Baghdad should have sole discretion in handling oil exports and oil revenues.
By Charles Kennedy for Oilprice.com