Iraq's Vital Oil Hub Grinds to a Halt as Hormuz Shutdown Strangles Exports
The ongoing war in Iran is delivering a devastating blow to Iraq's fragile economy, with the critical Strait of Hormuz closure bringing the nation's oil exports to a virtual standstill. Once bustling Iraqi oil fields now lie nearly deserted, while ports that thrummed with commercial activity have fallen eerily silent.
Economic Lifeline Severed
Iraq, which relies on oil revenues for approximately 90% of its national budget, faces an unprecedented crisis as most of its crude exports traditionally transit through the Strait of Hormuz. This narrow Persian Gulf passageway has been effectively closed by Iran during the conflict, strangling Iraq's economic lifeline. The war, initiated by U.S.-Israeli strikes, has also dramatically reduced imported goods reaching southern Iraqi ports while halting cross-border traffic with Iran.
"Unlike other Middle Eastern nations affected by the conflict, Iraq finds itself uniquely vulnerable," analysts note, hosting both entrenched Iran-aligned forces and significant U.S. interests that leave it exposed to attacks from multiple directions.
Production Plummets Across Southern Iraq
Since hostilities began, oil production in southern Iraq—where the crucial province of Basra produces nearly all the country's crude—has collapsed by more than 70%. Simultaneously, imported goods reaching Iraqi ports have been slashed by half. The economic devastation is compounded by regular drone and missile attacks targeting American companies, military bases, and energy infrastructure operated by Iran's allied Iraqi militias.
Ahmed Tabaqchali, an expert on Iraq's economy, warns: "The Iraqi government may have sufficient funds to survive until mid-May without new oil sales, but thereafter would need to borrow money. Resorting to bond issuance would carry significant consequences."
Oil Fields Scale Back Operations
Across southern Iraq, the Strait of Hormuz closure has forced oil fields to drastically reduce production, focusing primarily on domestic needs while global oil prices surge. Basra's Zubair oil field, previously producing around 400,000 barrels daily, has seen output plummet to approximately 250,000 barrels.
Bassem Abdul Karim, head of the state-run Basra Oil Company overseeing provincial production, acknowledges that Iran has offered assurances for safe transit of Iraqi crude through the strait. However, Iraq's dependence on chartered vessels rather than its own tanker fleet means shipments ultimately depend on whether tanker owners will accept heightened risks—and most are refusing.
At Zubair's degassing station, where crude is processed, production has slowed dramatically. "It's quiet now because of the reductions," confirms chief engineer Ammar Hashim. "Of course we are worried."
Exports Completely Halted
The downturn in Zubair reflects a broader collapse across Basra province, where output has plunged from 3.1 million barrels daily to roughly 900,000. "Exports are currently completely halted," reveals Abdul Karim. "We are considering alternative loading areas, but none are fully operational."
Security incidents have become routine, with a drone recently crashing in the Majnoon oil field north of Basra without detonating. A security official, speaking anonymously, indicated such events are increasingly common, with the drone likely headed toward U.S. bases in Kuwait. Production at Majnoon has been suspended due to the frequency of these incidents.
Foreign Exodus and Infrastructure Attacks
Hundreds of employees from American, British, Italian, French, and other international oil companies have fled Iraq since the war began. Departures accelerated after a March 6 drone strike hit the Burjisiya complex in Basra—a key logistics hub for Iraq's oil industry used by numerous companies—targeting U.S. oil services company KBR's chemical storage facility.
Another drone struck the British Petroleum-operated Rumaila oil field, prompting further foreign worker departures, though the field continues operating. Additional attacks targeted a BP-linked fuel warehouse in northern Iraq on Wednesday.
Efforts to reroute Iraq's oil face major obstacles: the country lacks capacity to boost exports via its northern pipeline, while trucking through Jordan and Syria proves costly and inefficient.
Ports Operating at Fraction of Capacity
Umm Qasr, Iraq's primary deep-water port, once operated at noise levels workers described as headache-inducing. Now, with the Strait of Hormuz closed, large mother ships can no longer reach the port directly. Instead, they dock in the United Arab Emirates, where cargo undergoes costly transfers to trucks and smaller vessels bound for Umm Qasr.
Port director Mohammed Tahir Fadhil confirms the port's jetties are running well below former capacity, with volumes halved by the war. During a recent visit, just one cargo ship from the UAE had docked.
The shipping threat escalated after Iran destroyed two tankers—the Marshall Islands-flagged Safesea Vishnu and Malta-flagged Zefyros—in Iraqi waters on March 11. "Today, our only gateway for goods is the United Arab Emirates," laments Farhan Fartousi, director of the Iraqi Ports Company.
Border Trade Disrupted
At Basra's Shalamcha border crossing with Iran, deputy director Haidar Abdul-Samad recently complained to Iranian officials about electricity cuts halting trade following an airstrike on the Iranian side. Such disruptions have become routine.
Before the war, the crossing reflected strong familial and commercial ties between Iranians and Iraqis, serving as a key transit point for traders and pilgrims heading to Shiite holy sites. Now, trucks are backed up for miles.
"Priority is given to food supplies to prevent price increases," explains Abdul-Samad. "Passenger movement has declined significantly due to the war in Iran."
Once electricity was restored, 30-year-old Iranian trader Atefa Al-Fatlawi arrived with her family, buying goods at lower prices in Basra to sell back home. "We are scared because of the bombings," she admits. "Shalamcha was targeted. Today, there were no transport vehicles at the garage because of the attack."
