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Iraq under pressure as oil exports slashed

4 March 2026

Analysis
Wil Crisp
Oil & gas reporter

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Iraq’s oil and gas sector is facing mounting challenges as production levels drop sharply amid the US and Israel’s ongoing war with Iran.

In the south of the country, oil exports have been paralysed by the closure of the Strait of Hormuz, and, in the country’s northern region of Iraqi Kurdistan, exports via the Iraq-Turkiye Pipeline (ITP) have fallen to zero.

Industry insiders are expecting the impact to be felt for some time to come.

On 2 March, Iran’s Revolutionary Guard Corps (IRGC) said the Strait of Hormuz is closed and warned that any vessel attempting to pass through will be attacked.

Ebrahim Jabari, a senior adviser to the IRGC’s commander-in-chief, said: “The strait is closed. If anyone tries to pass, the heroes of the Revolutionary Guard and the regular navy will set those ships ablaze.”

Stakeholders in Iraq’s oil and gas sector believe that the closure of the Strait by Iran is likely to have a long-term impact on companies operating in the south of the country.

One source said: “The outlook for the companies operating in the south is very bad right now.

“Potentially, a lot of companies in the south are going to be very anxious about the Strait of Hormuz for a very long time.

“There are hardly any other export routes they can use, and even if Iran’s military capabilities are substantially eroded, it’s going to be very hard to defend ships that are passing through there.”

On 3 March, the decision was taken to completely stop production at the South Rumaila field, after Iran’s IRGC declared the Strait of Hormuz closed.

The Rumaila oil field, which is made up of North Rumaila and South Rumaila, is the second-biggest oil field in the world.

The oil field normally has the capacity to produce 1.2 million barrels a day (b/d), but has cut production by at least 700,000 b/d due to overloaded storage.

Also in the south of the country, there have been cuts to production at the West Qurna 2 and Maysan fields.

Pipeline problem

The main export route for oil producers in Iraqi Kurdistan is the ITP.

This key pipeline, which reopened on 27 September last year, was closed again after production from the region dropped dramatically due to multiple oil fields closing as a safety precaution.

The fields that have temporarily stopped production include the Atrush and Sarsang fields.

Canada-based ShaMaran Petroleum Corporation, which holds stakes in both fields, said that the closures were due to “the deterioration in the regional security environment”.

On top of this, the Iraqi Kurdistan’s Shaikan field, which London-listed Gulf Keystone Petroleum operates, has stopped production due to security concerns.

Shaikan is one of Iraqi Kurdistan’s largest producing fields and produced more than 41,500 b/d in 2025.

“When it comes to the outlook for future oil exports, the calculation is completely different for these companies in Iraqi Kurdistan compared to the companies in the south of the country,” said one source.

“It’s possible that the pipeline will be easier to open in the near future than the Strait of Hormuz.

“It’s not so close to Iran and, so far, no damage has been sustained by the pipeline or the oil fields.

“With prices so high right now, everyone involved in exporting oil via the pipeline is highly motivated to see it restarted.”

The disruption to global oil and gas supplies caused by the Iran conflict has driven global oil prices up by around 15%, with Brent crude oil briefly rising above $85 a barrel on 3 March, the highest it has been since July 2024.

One source said: “These high oil prices are going to be a nightmare for consumers – but if you are an oil company, it’s an opportunity to make some serious money.

“However, you can only make that money if you can ship your oil – and a lot of oil companies in Iraq are going to struggle to do just that.”

Another source said: “There’s nothing technically wrong with the Kurdistan fields or the pipeline at the moment, and a lot of people believe they could be brought back online relatively quickly.

“The pipeline has only been shut down because of the oil field closures. All of the oil that is currently being produced in Iraqi Kurdistan is being used domestically.”

Key staff at Iraqi Kurdistan’s oil companies remain in the country, and the companies are planning quick restarts to cash in on current high prices, according to sources.

One said: “While many of these companies have plans in place for evacuations by land to Turkiye if the situation worsens, right now it seems more likely that things will stabilise and the companies will bring their fields back online soon.

“Workers have been told to stay inside – but many are used to the threat of drone and rocket attacks, and they are still going to the pub and living their lives as normal.”

Uncertain future

While many stakeholders in Iraqi Kurdistan believe the outlook for oil companies in the region is better than in the south of the country, significant challenges remain, and the situation could change dramatically due to the chaotic nature of the ongoing conflict.

One factor that is likely to remain challenging in Iraqi Kurdistan is logistics for key personnel.

One source said: “Airport closures and flight cancellations are likely to dog this region for some time to come, so getting people in and out is expected to remain difficult.”

Another concern is potential attacks on oil fields by militant groups in the region that are loyal to Iran.

“We’ve seen that Iran wants to lash out and do damage to oil assets in nearby countries – so an attack on key fields in Iraqi Kurdistan would not be a surprise,” the source added.

An attack on the ITP pipeline itself could dramatically change the outlook for Iraqi Kurdistan.

Drone attacks or rockets could potentially put the pipeline out of action for months, dealing a serious blow to the outlook for the region’s oil companies.

While the future for the oil sector in both federal Iraq and the Kurdistan region remains highly uncertain, it is clear to everyone involved that the disruptions to the country’s oil and gas sector are causing severe economic damage to the oil-reliant country.

On 3 March, Baghdad-based research organisation Eco Iraq Observatory estimated that Iraq was losing $128m a day after the shutdown of the Rumaila and Kurdistan fields.

It said a one-week shutdown could cost the Iraqi treasury nearly $900m, and a month could result in losses exceeding $3.8bn.

With Iraq relying on oil for more than 90% of government revenues, it is likely that the country will rapidly enter an economic crisis if it does not find a way to bring exports back online over the coming days.

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Wil Crisp

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