Iraq’s oil is moving again, but through the same strait and at steep discounts

Seven months into the US–Iran war, Iraq is exporting most of its oil again. The oil ministry told Reuters that exports averaged 2.65 million barrels a day (b/d) in September; Vortexa says the pace in the first 20 days was the highest since the war began on 28 February. The recovery has come mainly through the strait that caused the crisis, not around it. It depends on shuttle tankers, US naval protection and a measure of Iranian tolerance, and Iraq is paying for it with record discounts. The alternative routes through Türkiye and Syria are growing, but from a small base.

From collapse to partial recovery

Before the war Iraq exported around 3.4 million b/d, almost all of it from Basra through Hormuz, according to AFP; Vortexa puts February exports at 3.7 million b/d, and the head of the state oil marketer SOMO, Ali Nazar, has cited 3.5 million. When tanker traffic stopped in early March, Iraq’s limited onshore storage filled within days. Noonpost, drawing on SOMO data, reports that output from the main southern fields fell from about 4.3 million b/d to 1.3 million on 8 March, the day SOMO said southern exports stopped. Exports averaged roughly 600,000 b/d in March. Vortexa recorded a low of 263,621 b/d in May.

The recovery since then has been substantial. SOMO data cited by Noonpost show August exports of 73.7 million barrels, or about 2.38 million b/d, about 31.5 per cent below January’s pace. Vortexa put exports at 2.6 million b/d for 1–20 September. Official figures vary. The oil minister, Basim Mohammed Khudair, has spoken of 3 million b/d, while Nazar told parliament that September exports averaged 2.5 million against an available capacity of 4.2 million. Iraq produced 3.9 million b/d in August, according to AGBI, against 4.5 million in February.

How the oil gets out

Vortexa estimates that about 90 per cent of Iraq’s current exports still leave through Hormuz. The mechanism is a shuttle: a tanker loads inside the Gulf, crosses the strait and transfers its cargo to a larger vessel waiting off Oman, then returns. HUAX Maritime Intelligence told AGBI that Iran had “explicitly allowed” a number of tankers carrying Iraqi crude to pass, and AFP reports that Tehran announced a special exemption for Iraqi tankers in late August. Prime Minister Ali al-Zaidi has kept diplomatic channels with Tehran open, visiting Iran in July and meeting President Masoud Pezeshkian in New York in September.

This arrangement is fragile, and Iraqi officials say so. “Even if we can export three million barrels a day right now, there are no guarantees we can sustain this level due to the unpredictable future of the Strait of Hormuz,” Khudair told parliament, according to Al Jazeera. Daily volumes leaving Iraq swing from zero to more than 7 million barrels, Vortexa says.

The price of getting out

Buyers are being paid to take the risk. Nazar told parliament that SOMO was offering discounts of $26.50 a barrel on medium crude and about $28 on heavy, and was still struggling to find buyers; Kuwait and Qatar, he said, had offered up to $35. On 30 September Reuters reported that SOMO had widened its discounts for October-loading cargoes to $34.50 for Basrah Medium and $37 for Basrah Heavy, from under $30 for August and September, as freight rates rose. Vitol and the UAE’s ADNOC have been among the buyers. The oil minister has said the cost of shipping a barrel has risen from $26 to $37, according to Noonpost.

The effect on revenue is direct. The ministry’s spokesman said Iraq earned around $4.5bn from 70 million barrels of southern exports in August.

The northern and western routes

Türkiye is the largest alternative outlet. In August Baghdad and Ankara signed a one-year, extendable agreement for at least 750,000 b/d through the Iraq–Türkiye pipeline to Ceyhan. Actual flows were about 170,000 b/d on 21 August, Noonpost reports. From 28 September they rose to 250,000 b/d, Kurdistan24 reports, made up of 180,000 b/d of Kirkuk crude and 70,000 b/d from the Kurdistan Region, with the increase linked to Basra crude being trucked north to Kirkuk. The Basra Oil Company’s manager says about 250,000 b/d is moving by road from the southern fields to storage in Kirkuk, and Al Jazeera reports plans to raise that to 750,000. Vortexa’s Xavier Tang told AGBI that Ceyhan loadings could rise to around 600,000 b/d, close to their 2016–2017 peak of 620,000.

Syria has become a second outlet. Iraq began trucking fuel oil to Syria’s Baniyas terminal in April, reopening the Rabia crossing in Nineveh on 20 April after more than a decade to ease congestion at al-Waleed. SOMO contracted about 650,000 tonnes a month through Syria for April–June. In September the route started running in reverse as well, with gasoline imported through Baniyas under a contract with Qatar’s UCC Holding to cover a domestic shortfall of about 5 million litres a day. Noonpost estimates that even at Baniyas’s full unloading capacity of about 900 trucks a day the route can carry only about 120,000 b/d; a Syrian economist put actual flows at 100,000–125,000 b/d in April. A new pipeline from the south to Baniyas could take about four years and cost at least $15bn, sources told Reuters in August.

Al-Zaidi told the UN General Assembly that Iraq was developing “energy lines and corridors linking Iraq, Türkiye, Jordan and Syria”, and he linked this to the Development Road. These are long-term projects. Iraqi analyst Sarmad al-Bayati told Al Jazeera that, for now, the alternatives offer “no real solutions” if Hormuz stays constrained.

The fiscal bill

Oil provides more than 90 per cent of Iraq’s federal budget. Al-Zaidi says the war has cost about $60bn in lost oil revenue. His financial adviser, Mudher Mohammed Salih, said central bank reserves fell from about $106bn before the war to roughly $80bn by late August. The parallel-market rate for the dinar reached about 1,600 to the dollar in the third week of September, against about 1,540 before the war and an official rate near 1,300, according to Al Jazeera. The government has turned to domestic borrowing; one economist told AFP it was probably counting on a resolution before the end of the year.

The EBRD now expects Iraq’s GDP to contract by 12 per cent in 2026, the main reason it cut its forecast for all its regions, before a 14 per cent rebound in 2027 if shipments normalise. In Basra, AFP found oil contractors that had cut salaries by as much as half and the Umm Qasr port nearly empty.

What would change the picture

• A settlement in the US–Iran talks that restores normal transit, which would end the shuttle system and narrow the discounts quickly.
• Ceyhan flows moving towards 600,000 b/d, which would require sustained trucking from Basra or new pipeline links in the north.
• Financing decisions on a southern pipeline to Syria or Jordan, without which Iraq’s export geography will not change.
• Any change in Iran’s tolerance of Iraqi cargoes, which on current evidence matters more to Iraqi revenue than any alternative route.

Iraq has shown that it can keep oil moving under wartime conditions. It has not yet built an export system that would let it do so without Hormuz.

Sources

• Malay Mail (AFP) — Idle workers, empty wharves: Hormuz blockade hits Iraq’s oil hub of Basra
• bne IntelliNews — EBRD cuts growth forecast to 2.5% as Iraq oil exports slump
• Türkiye Today — Iraq plans new energy corridors through Türkiye, Jordan and Syria
• Al Jazeera — Iran war squeezes Iraq’s economy as oil revenues fall and prices rise
• Al Jazeera — Iraq looks for oil export alternatives to the troubled Strait of Hormuz
• Noonpost — From Basra to Baniyas: Iraq’s search for energy routes beyond the Gulf
• Kurdistan24 — Kirkuk oil exports via Kurdistan Region pipeline surge to 250,000 barrels per day
• AGBI — Iran’s blind eye helps Iraqi oil exports to bounce back
• Zawya (Reuters) — Iraq’s SOMO offers deeper discounts for October-loading crude, document shows
• Devdiscourse (Reuters) — Iraq’s September oil exports average 2.65 million bpd, including 250,000 bpd via Turkey’s Ceyhan