Iraq posts $5bn budget gap as oil revenue slumps during Iran war

Iraq posted a fiscal deficit of ID6.7 trillion ($5 billion) in the first four months of 2026 after the Iran war dented oil export revenue, underlining the need for government approval of a new state budget.

The Iraqi government has been spending a monthly average of just over 8 percent of last year’s expenditure, even though the previous budget was based on oil production of around 3.4 million barrels per day.

Iraq is pumping as low as a third of that level after Iran’s near-closure of the Strait of Hormuz stopped Baghdad exporting most of its oil.

Spending in the first four months of this year stood at about ID37.8 trillion while revenues were estimated at nearly ID31.1 trillion, the finance ministry said.

Oil revenues were nearly ID26 trillion, with additional income from customs and government fees.

The ministry said civil servant wages remained the largest focus of state spending, consuming ID20.5 trillion, more than half the total budget.

Iraq’s parliament has submitted a proposal for a budget of ID20-ID30 trillion to keep government offices running and protect projects that have already been awarded, the official gazette, Al-Sabah, said.

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The new cabinet of prime minister Ali Al-Zaidi has held only a few meetings since taking office in mid-May and is yet to decide on a new budget.

“There is a pressing need for the new government to work to release a full budget because the delay will hurt growth and projects,” said Nabil Al-Marsoomi, an economics professor at Basra University in southern Iraq.

“The absence of a budget limits the government’s ability to confront the financial crisis, as its approval provides legal cover for internal and external borrowing, as well as liquidity management through the central bank.”