Iraq is bracing for a financial squeeze in 2025 as the price of oil, its primary source of government revenue, continues to decline. Mudher Saleh, a top economic advisor to Prime Minister Mohammed Shia al-Sudani, warned of potential budget constraints. While 2024 is expected to be manageable, Saleh emphasized the need for stricter financial management in the following year.
Iraq, the second-largest producer in the Organization of the Petroleum Exporting Countries (OPEC), relies heavily on oil for its economic lifeline. The hydrocarbons sector accounts for the vast majority of export earnings and nearly 90% of state revenue. This heavy dependence on oil leaves Iraq extremely vulnerable to fluctuations in global crude prices. Despite the looming challenges, Iraq increased its budget in 2024, building on the record spending in 2023. This spending included hiring over half a million new employees into the already expansive public sector and launching a nationwide infrastructure revamp. The 2024 budget, pegged at 211 trillion Iraqi dinars ($161 billion), represents a rise from the 199 trillion dinars ($153 billion) allocated in 2023. However, this increase maintains a projected deficit of 64 trillion dinars. The budget forecasts an oil price of $70 per barrel in 2024, about $6 less than the anticipated average price this year.
Saleh emphasized the government’s commitment to prioritizing salaries and pensions, which constitute 90 trillion dinars ($69 billion) or over 40% of the budget. He recognized these payments as crucial for maintaining social stability in Iraq, stating, “The government will pay salaries even if it costs everything. Salaries are holy in Iraq.” Regarding infrastructure development, Saleh indicated that the focus may shift towards the most strategic projects, such as essential road and bridge works in Baghdad, if the country faces a financial crunch.
To bolster its financial position, Iraq is focusing on expanding non-oil revenue through improved tax collection efforts, without introducing new levies. Saleh estimated that the country loses up to $10 billion annually due to tax evasion and customs-related issues.
The concerns surrounding the 2025 budget mirror the challenges in the global oil market. Since mid-2022, oil prices have trended downwards. Brent crude, the international benchmark, has dropped from over $120 per barrel to below $75 in recent days. This decline is primarily attributed to weakening global demand, particularly from China, the world’s largest oil importer, as its economic growth slows down.
