ABSTRACT

Iraq's government is struggling to pay salaries on time after a blockade of the Strait of Hormuz, imposed by Iran following US and Israeli strikes on Iran in late February, cut the country's seaborne crude exports by approximately 83% in March year-on-year and by 97% by May, according to figures cited by DW. Because between 85% and 90% of Iraq's national budget derives from oil exports, and roughly two-thirds of working-age Iraqis depend on state income, the shortfall has begun affecting routine payments to teachers, doctors, university staff, and Ministry of Electricity employees.

Deutsche Welle

Strait of Hormuz blockade strains Iraq's public finances, delaying salaries for government workers

Aug 12, 2026, 1:00 PM

Context

Iraq's government requires between $6.5 billion and $8.2 billion each month to cover salaries, pensions, and social welfare. Government sources told local media that monthly income in May and June fell to between $2 billion and $2.3 billion.

Mahmoud Waleed, a 38-year-old teacher from Mosul paid by the Iraqi Ministry of Education, told DW that salary delays had been worsening over approximately three months, describing the situation as causing anxiety and prompting households to cut spending and build emergency savings.

A doctor from Mosul who declined to give his full name said salaries were delayed by more than 10 days in one recent month and that the Minister of Health had cited insufficient cash flow as the reason.

Small demonstrations over delayed salaries took place in early August, involving university staff and Ministry of Electricity employees.

Rumors circulated that salaries would shift from monthly to every 45 days. The Iraqi government denied this and stated it holds $83 billion in reserves plus gold and non-oil income, which it said was sufficient to cover salaries for 10 to 11 months.

UK advisory firm Oxford Economics published a report this week stating that maritime traffic through the Strait of Hormuz is unlikely to return to pre-conflict levels before at least 2028, with traffic expected to fluctuate as tensions change.

Iraqi economist Ali Al-Rawi, writing in an August report for Baghdad-based think tank Al Bayan Center, described the situation as a crisis that 'transcends the oil sector,' arguing the entirety of the Iraqi economy is dependent on oil revenues.

New vehicle sales in Iraq fell 28.6% in the first half of the year, reflecting broader economic contraction.

Iraq has pursued partial workarounds: a small share of oil is exported via a Turkish pipeline; oil has been trucked to Syrian ports; the government announced last week it is reviving a long-closed Iraq-Lebanon pipeline. Iraqi Prime Minister Ali al-Zaidi said he raised the possibility of special dispensation for Iraqi oil through the strait during a visit to Iran in late July.

Researchers at economic consultancy Iraqi Horizons noted that in May, total government expenditure fell roughly a quarter compared to the previous year, with salaries, pensions, and social security accounting for 99% of all operational spending, leaving little funding for other purposes.

Iraq does not have significant alternative export routes of its own, unlike other regional producers, making it particularly exposed to the blockade.

All Perspectives

Iraqi government workers (Mosul): Mahmoud Waleed described salary delays as causing financial strain and anxiety, saying households are cutting expenses and setting aside emergency savings. A doctor who asked not to be fully named said the uncertainty over future delay lengths was the main concern, after one month's salary arrived more than 10 days late.

Iraqi government: The government denied rumors of a shift to 45-day salary cycles and stated it retains $83 billion in reserves, plus gold holdings and non-oil income, sufficient to fund salaries for 10 to 11 months. It is pursuing alternative export routes including a Turkish pipeline, trucking to Syrian ports, and revival of the Iraq-Lebanon pipeline. Prime Minister al-Zaidi also sought Iranian dispensation for Iraqi oil to pass through the strait.

Oxford Economics (Ben May, director of global macro research): A report this week stated that maritime traffic through the Strait of Hormuz is unlikely to return to normal anytime soon and that until at least 2028, traffic levels are expected to fluctuate as tensions ebb and flow, while on average remaining well below pre-conflict norms.

Ali Al-Rawi, Iraqi economist, Al Bayan Center: Writing in an August report, Al-Rawi argued the crisis transcends the oil sector and that the entirety of the Iraqi economy is now dependent on oil revenues.

Hayder al-Shakeri, research fellow, Chatham House: Al-Shakeri told DW the situation is unlikely to destabilize Iraq in the short term. He said further salary delays would probably produce more sectoral protests rather than a nationwide movement like the 2019–2021 Tishreen protests, noting the government now has political, administrative, and security mechanisms to contain unrest. He cautioned that a sustained combination of salary delays, electricity shortages, inflation, and deteriorating services could cause separate protests to converge and pose a more serious test to stability. He also observed that fiscal crises have historically pushed Iraqi governments toward reform, but that political incentives for reform tend to weaken once oil revenues recover.

Iraqi Horizons (economic consultancy): Researchers wrote this month that May data showed total government expenditure fell around a quarter year-on-year, with salaries, pensions, and social security consuming 99% of all operational spending, leaving almost no funding available for other purposes including reform implementation.

Position not represented in the source reporting: Iran (the party that imposed the blockade central to the story has no direct quote or statement of its position presented).

Gaps & Unknowns

Iran's stated rationale for the Strait of Hormuz blockade and its position on Iraq's request for special dispensation are not detailed in the source.
The Iraqi Ministry of Health's full explanation for salary delays, beyond the brief characterization attributed to the minister, is not provided.
The current status of the Iraq-Lebanon pipeline revival and its projected capacity relative to Iraq's export needs are not specified.
Independent verification of the Iraqi government's claimed $83 billion in reserves is not provided.
The specific terms or outcome of Prime Minister al-Zaidi's discussions with Iranian officials in late July are not reported.

Sources & Further Reading

Deutsche Welle — original

Read the original at Deutsche Welle

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