meed-logo

line1 line2 line3
SIGN IN / REGISTER

Iraq maintains its pace, for now

29 May 2025

Commentary
John Bambridge
Analysis editor

Iraq faces economic challenges amid lower oil prices and global shocks that raise concerns over Baghdad’s ability to maintain its heightened spending trajectory – even as that spending is supporting project and non-oil growth.

With a Brent crude oil price around the $64-a-barrel mark, and with a budget breakeven price point closer to $110 under the government’s expansionary 2023–25 budget, Iraq is on course to rack up a deep deficit in the near term. Yet given Baghdad’s junk-rated credit, any fiscal course that risks drawing the government closer to external financing is perilous.

At the same time, Iraq has infrastructure ambitions that will only be realised if the country maintains its near-term capital investments, so for now that remains the course. Indeed, the heightened spending – alongside external investment – is creating significant buoyancy in the projects sector.

Iraq’s oil, gas and chemicals project market in particular has surged to its highest value in a decade, reaching $152.2bn as of May 2025, while the value of projects under execution in the sector has risen to a record $93.3bn.  

The resilience of Iraq’s energy sector comes despite political and security challenges. Even as firms like Shell and ExxonMobil have exited the market, citing operational difficulties, the UK’s BP has invested heavily in reviving Kirkuk’s oil fields, and France’s TotalEnergies is working to develop and upgrade the southern Ratawi field through its Gas Growth Integrated Project. 

In the power sector, several of the country’s biggest projects have advanced to the execution stage in recent months, with Iraq signing preliminary deals to build and upgrade up to 38GW of gas power capacity in the country.

Chinese firms have meanwhile signed engineering, procurement and construction contracts for more than $20bn of energy and power schemes since the start of 2024.

In the broader general contracting sector, there are $78bn-worth of planned projects, including $54bn in the construction sector and $24bn in the transport sector. This project activity is being supported by significant budget commitments – $42bn in 2024 – into infrastructure and housing.

The strength of the project activity in the market is such that it helps mask the fiscal trouble stalking the government. Soon, however, Baghdad will either need to check its outlays or court disaster. Structural reforms – either to tackle runaway running costs on wages and pensions or to generate fresh tax revenue – present unpalatable options for the fragile coalition government.

Baghdad will be hoping the oil price improves, and that the energy, power and logistics infrastructure being developed will provide enough of a productivity boost to set the whole country on a more positive growth footing.

 

MEED’s June 2025 report on Iraq includes:

> GOVERNMENT & ECONOMY: Iraq’s economy faces brewing storm
> OIL & GAS: Iraqi energy project value hits decade-high level
> PIPELINES: Revival of Syrian oil export route could benefit Iraq
> POWER: Iraq power sector turns a page
> CONSTRUCTION: Iraq pours billions into housing and infrastructure projects
> DATABANK: Iraq forecast dips on lower oil prices

https://image.digitalinsightresearch.in/uploads/NewsArticle/13956725/main.gif
John Bambridge

Register for MEED's guest program now to access this article.

Click here to register
Exclusive from Meed
Related Articles