Iraq is seeing the worst of the Middle East crisis as its heavily oil-dependent economy is now collapsing with the trickling oil revenues amid the blockage of the Strait of Hormuz.
Iraq, OPEC’s second-biggest oil producer behind Saudi Arabia, has done very little in recent decades to diversify its heavy dependence on oil. Petroleum sales still account for 90% of revenues for state budget. While other producers in the Middle East also depend on oil sales, none is as dependent as Iraq.
This dependence resulted in collapsing oil revenues and an economy on the brink under a caretaker government months after the general elections.
Due to the de facto closure of the Strait of Hormuz, Iraq has been forced to slash its oil production as its exports from Basra need to transit the world’s most vital oil chokepoint.
Iraq, unlike Saudi Arabia and the United Arab Emirates (UAE), doesn’t have any options to bypass the Strait of Hormuz, forcing Baghdad to slash oil production as storage sites and tankers available in the Gulf filled up.
Iraq moved to restore a northern oil export route to send crude from the Kirkuk fields directly to Turkey’s Mediterranean port of Ceyhan, as the southern export route via the Strait of Hormuz has been effectively closed for weeks.
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But due to the heavy dependence on the southern export route via Hormuz, Iraqi oil exports have collapsed from about 3.4 million barrels per day (bpd) before the war, to just about 250,000 bpd now, according to estimates reported by the Financial Times.
Iraq has cut output more than the other Middle Eastern producers—its output plunged by 70% as early as one week into the war.
For Iraq, the situation is more critical than the other Gulf producers—its dependence on oil revenue is the highest in the region, and unlike Kuwait, the UAE, and Saudi Arabia, Baghdad doesn’t have a huge sovereign wealth fund to lean on.
Moreover, Iraq depends 90% on imports of food, consumer goods, and medicine supply transiting the Strait of Hormuz, which deepens the crisis for its economy.
By Tsvetana Paraskova for Oilprice.com
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