BAGHDAD – The ripple effects of the US-Israeli war on Iran are now engulfing Iraq’s energy sector, with the country’s oil industry grinding to a near-standstill amid the regional crisis. Bassem Mohammed Khudair, Iraq’s deputy oil minister for extraction affairs, told the official Iraqi News Agency (INA) that “most activities and projects are currently suspended due to the reality imposed by the war.”
The admission represents a dramatic reversal for Iraq, which before the conflict was one of the world’s largest oil producers, pumping nearly 4.5 million barrels per day. The country’s economy is overwhelmingly dependent on oil revenues, and the suspension of activities threatens to deepen the economic hardship facing Iraqi citizens already grappling with the effects of regional instability.
Khudair expressed cautious optimism that production levels at oil fields could return to previous rates “within days if the crisis ends.” However, he warned that gas projects, while not fully halted, face an uncertain future, with their continuity “depending directly on an end to the ongoing war.”
The Basra Output Collapse
Deputy Oil Minister Hayan Abdul Ghani provided stark figures illustrating the scale of the disruption. He said output at the Basra Oil Company—the crown jewel of Iraq’s oil sector—has been sharply reduced from 3.3 million barrels per day to just 900,000 barrels. The cut followed a halt in oil exports from southern ports, he said, with current output directed solely toward operating domestic refineries.
The collapse in Basra production represents a loss of approximately 2.4 million barrels per day from global markets—a supply shock that compounds the disruptions already caused by the closure of the Strait of Hormuz. For Iraq, which relies on oil exports for more than 90 percent of government revenue, the production cuts threaten fiscal stability at a time when the country is already under immense pressure.
The Strait of Hormuz Obstacle
Khudair pointed to the closure of the Strait of Hormuz as a critical factor in Iraq’s oil sector crisis. The strategic waterway, through which approximately 20 percent of the world’s oil normally passes, has been effectively disrupted since early March. Iran has asserted control over the strait, with Tehran’s military declaring this week that the situation “will not return to the past.”
“The closure of the Strait of Hormuz poses a major obstacle to sustaining these vital projects,” Khudair said. The warning underscores Iraq’s vulnerability to the disruption of maritime routes, as the country exports the vast majority of its oil through the Gulf.
The Strait of Hormuz has been a central flashpoint in the conflict. Iran’s ability to threaten shipping through the waterway has given Tehran significant leverage, and the disruption has driven up shipping costs and pushed global energy prices higher. For Iraq, which shares a long border with Iran and hosts US military forces, the conflict has placed the country in an impossible position.
The Challenge of Construction Projects
Khudair provided a detailed assessment of the challenges facing Iraq’s energy sector. He said that producing fields that do not rely on imported materials are still being managed effectively by Iraqi personnel working in coordination with foreign companies remotely. This arrangement has allowed some production to continue despite the conflict.
Construction projects, however, face the greatest challenges. These projects depend heavily on imported materials and logistical support, both of which have been severely disrupted by the closure of the strait and the broader regional instability. Without the ability to import necessary equipment and materials, major oil and gas projects have ground to a halt.
Regional Conflict Takes Its Toll
The disruption to Iraq’s oil sector is the latest consequence of a regional war that has now entered its fifth week. The United States and Israel have carried out an air offensive on Iran since February 28, killing more than 1,340 people, including former Supreme Leader Ayatollah Ali Khamenei. Iran has retaliated with drone and missile strikes targeting Israel, Jordan, Iraq, and Gulf countries hosting US military assets, causing casualties and infrastructure damage while disrupting global markets and aviation.
Iraq has found itself caught in the crossfire. The country hosts US military forces and has been targeted by Iranian retaliatory strikes, while its territory has been used by Iran-backed militias to launch attacks on US and Israeli targets. The suspension of oil activities represents a new front in the crisis—one that strikes at the heart of Iraq’s economy and its ability to provide for its people.
Global Energy Market Implications
The disruption to Iraq’s oil production compounds an already dire situation in global energy markets. Iran’s closure of the Strait of Hormuz has already removed approximately 20 percent of global oil supply from the market, driving prices above $100 a barrel. The loss of Iraqi production—estimated at around 2.4 million barrels per day—adds to the supply shock.
For oil-importing countries, including Pakistan, which is already implementing fuel conservation measures and considering weekly lockdowns, the situation is increasingly dire. The International Energy Agency has warned that the world faces an energy crisis worse than both 1970s oil shocks combined, with no country immune to the effects.
The disruption to Iraqi gas projects also has implications for regional energy security. Iraq has been working to increase gas production to reduce its dependence on Iranian imports, but those efforts have now been set back by the conflict.
Diplomatic Efforts Continue
The suspension of Iraq’s oil activities adds urgency to diplomatic efforts to end the conflict. Pakistan has positioned itself as a key mediator, with Prime Minister Shehbaz Sharif formally offering to host US-Iran talks in Islamabad. The White House has said that talks continue and remain “productive,” even as it warned that President Trump is prepared to “unleash hell” on Iran if Tehran fails to accept the “reality of the current moment.”
Iran, meanwhile, has hardened its position, with its military declaring control over the Strait of Hormuz and its parliament speaker accusing the US and Israel of planning to occupy one of Iran’s islands. The gap between the two sides appears wide, even as backchannel communications continue.
For Iraq, the stakes could not be higher. The country’s oil sector is the lifeline of its economy, and the suspension of activities threatens to push an already struggling population deeper into hardship. Whether diplomatic efforts can produce a ceasefire before Iraq’s oil infrastructure suffers irreversible damage remains an open question.
Analysis: A Country Caught in the Crossfire
Iraq’s oil sector crisis is a stark illustration of how the US-Iran conflict has engulfed the entire region, with devastating consequences for countries that had hoped to stay on the sidelines.
For Baghdad, the situation is particularly painful. Iraq has spent years rebuilding its oil infrastructure after decades of war, sanctions, and instability. The country had recently achieved record production levels and was poised to expand its capacity further. Now, much of that progress has been reversed in a matter of weeks.
The suspension of oil activities also highlights Iraq’s vulnerability to external shocks. The country’s dependence on oil exports, its reliance on imported materials for construction projects, and its position between Iran and the Gulf states have all combined to make it one of the conflict’s biggest economic victims.
For the United States, the disruption to Iraqi oil production presents a strategic problem. Iraq is a key US ally in the region, and the collapse of its oil sector threatens to destabilize a country that Washington has invested heavily in stabilizing. The production cuts also contribute to the global energy crisis that the administration is trying to manage.
For Iran, the impact on Iraq is a double-edged sword. While Tehran may view the disruption as a form of pressure on its adversaries, the collapse of Iraq’s oil sector also hurts a neighbor with which Iran has deep economic and political ties. The two countries have built extensive trade relationships, and Iraq’s instability ultimately affects Iran’s own security.
As the conflict enters its fifth week, the suspension of Iraq’s oil activities serves as a warning of what is at stake. The longer the war continues, the deeper the damage to the region’s infrastructure—and the harder it will be to rebuild when the fighting finally stops.
