A joint assessment by the Food and Agriculture Organization (FAO) and the World Food Programme (WFP), incorporating World Bank data on the Strait of Hormuz closure, reveals that a maritime blockade has caused Iraq's oil exports to plummet by 85%, driving domestic debt above 100 trillion IQD and projecting an 8.6% GDP contraction this year.

The Strait of Hormuz has been effectively closed to commercial shipping since the outbreak of the regional conflict on February 28, 2026.

The joint assessment highlights that 100 days into the blockade, the situation has escalated from a temporary shock into a full-scale crisis that threatens Iraq’s agricultural and food systems, alongside its broader macroeconomy.

Impact on the Economy and Livelihoods

The consequences for the domestic economy and daily livelihoods are rapidly intensifying, systematically weakening the resilience of both households and private enterprises. Key structural damages include:

• SME Revenue Losses: Business revenues have sharply declined for 85% of small and medium-sized enterprises (SMEs) across the country.
• Household Vulnerability: Faced with severely reduced wages, a vast majority of families have been forced to adopt extreme coping strategies to maintain basic survival.

The Most Severe External Shock

Per the report, Iraq's economy faces one of its most severe historical shocks. Following consecutive GDP contractions of 1.5% in 2024 and 0.7% in 2025, regional conflicts and the Strait of Hormuz closure have disrupted the nation's short-term outlook. 

While the World Bank projects an unprecedented 8.6% GDP contraction for 2026, a substantial rebound of 10.7% remains projected for 2027. However, this recovery is entirely contingent upon oil exports returning to baseline capacity by the end of 2026.

Financial Fallout of the Hormuz Blockade

The closure of the shipping corridor has triggered a catastrophic drop in Iraq's oil revenues, which plummeted from $6.7 billion in February 2026 to approximately $1 billion in May 2026.

Concurrently, domestic debt has surpassed 100 trillion IQD, while the national unemployment rate has spiked to 30%. This fiscal strain has placed severe pressure on the federal government’s financial capacity to fund the Public Distribution System (PDS) food baskets, state subsidies, and public sector salaries.

To combat the staggering collapse in energy revenues, the government has increasingly resorted to emergency borrowing from the Central Bank of Iraq (CBI) to cover essential recurrent expenditures, including public sector wages, civil service pensions, and social safety net payments.

Inaction Toward Genuine Reform

The joint report notes that despite compounding economic challenges, the Iraqi government has yet to launch a comprehensive economic reform program.

There are currently no substantial legislative measures aimed at diversifying state revenue sources or restructuring public expenditures to reduce the nation's long-term reliance on crude oil volatility.

Furthermore, the current economic shock threatens to entirely reverse Iraq's recent progress in poverty reduction.

This reversal heavily endangers the southern governorates and historically marginalized communities, which continue to experience the highest rates of food insecurity and face critical deficits in basic infrastructure and public services.

Labor Market Realities and Gender Stagnation

Even before the onset of the current crisis, the Iraqi labor market was structurally fragile, maintaining a baseline national unemployment rate of 13%. This pre-existing vulnerability exacerbates the impact of the prolonged shipping blockade on local job security and household incomes.

The World Bank further notes that Iraq's overall labor force participation rate remains low at 38%, a stagnation primarily driven by the severely limited economic inclusion and workforce participation of women.

Expert Economic Assessment

Mudher Muhammad Salih, the economic advisor to the Iraqi Prime Minister, revealed that Iraq has incurred direct financial losses between $40 billion and $45 billion since the outbreak of regional conflict. This staggering deficit is a direct result of the drastic drop in crude exports and the forced suspension of vital national development projects.

Prior to the escalation, Iraq exported 3.3 million barrels of crude oil daily, generating an annual revenue of approximately $88 billion. Following the geopolitical events of February 28, export volumes collapsed to less than 10% of their baseline capacity.

Salih stated that the government needs about 8 trillion IQD each month to pay civil service salaries, pensions, and social safety net allocations.

When factoring in the operational costs of electricity grid maintenance, PDS food baskets, medical supplies, and foreign debt servicing, Iraq's baseline monthly expenditure rises to 11 trillion IQD.