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  Financial challenge tests Iraq’s resolve

  13 May 2026

  

   

  On 21 April, as a fragile ceasefire held between the US and Iran, the Trump administration halted a $500m shipment in cash headed for Iraq, as it sought to clamp down on Iranian-backed Shia militias in the country. 

  That cash, derived from Iraqi oil exports and routed via the US Federal Reserve to the Central Bank of Iraq (CBI), is a vital cog in Iraq’s financial arteries, enabling it to cover foreign exchange demand.

  This was not the first time that Iraq’s financial system has felt the US’s warm breath on its neck.

  Back in February 2025, the US Treasury Department blacklisted five Iraqi banks from participating in dollar transactions, citing concerns about their role in illicit financial flows that benefited Iran’s Islamic Revolutionary Guards Corps.

  Iraq has also itself often circumscribed dollar use within its own financial system.

  In July 2023, the CBI banned 14 banks from conducting dollar transactions in a crackdown on dollar smuggling. In February 2024, it banned a further eight banks from dollar transactions as part of a crackdown on fraud and money laundering.

  Dollar pressure

  The recent halt in US dollar cash shipments has nevertheless added pressure to Iraq’s parallel currency market gap, says Lucila Bonilla, lead emerging market economist at Oxford Economics.  

  “The gap between the parallel exchange rate has widened noticeably against the official peg, to around 20%,” she says.

  “Dollar demand has risen as citizens and traders seek to hedge uncertainty – dollar deposits are up, and there are reports of a notable shift in the composition of cash holdings toward dollars.”

  Ratings agencies see the US move on Iraqi dollar use as a challenge, but one that might not prove too onerous.

  “Iraq can overcome a short-term war as it has $100bn of reserves and its debt profile is bearable,” says Gilbert Hobeika, a director at Fitch Ratings.

  “But a longer-term conflict will hurt Iraq as the economy is reliant on oil revenues and government involvement, while facing at the same time risk from the US stopping delivery of US dollars.”

  How persistent the pressure proves will depend largely on the duration of the Hormuz shock and how the relationship with the US evolves.

  “Forming a new government that is palatable to the US could ease the pressure, though Iraq’s protracted government formation process adds uncertainty to that timeline,” says Bonilla.

  The US-Iran war is putting even more pressure on banks.

  “There are uncertainties with regard to depositors,” says Hobeika. “The public sector banks have weak management and governance structures. Financial reporting is weak, and that puts pressure on asset quality and capitalisation.”

  If the conflict lasts a long time, the government will start withdrawing funds to pay salaries and contractors.

  “That will affect deposits at the public sector banks in the near term,” says Hobeika.

  State-heavy system

  Iraq’s banking system is dominated by a handful of state-owned banks with a market share of 75%-80%, and then 60-plus private banks competing for the remaining 20%-25% of the pie. 

  “Private banks have struggled to compete in a market with limited opportunities, small deposit bases and a narrow range of products, often focusing on very basic activities,” says Lea Hanna, an analyst at Moody’s.

  “In 2019, we had a wave of Islamic banks getting bans on dealing with US dollars – reducing what had been a primary source of business.”

  A few private banks have benefitted since then, namely those with majority ownership by foreign banks such as National Bank of Iraq, a subsidiary of Capital Bank of Jordan, and Bank of Baghdad, a subsidiary of Jordan Kuwait Bank.

  “Supported by their affiliates, these banks are relatively well run compared to domestic peers and have ample capital buffers,” says Hanna.

  “They have captured a large market share of US dollar transfers thanks to their strong US correspondent banking relationships that allow them easier access to US dollars. They have seen a surge in their profitability and an increase in their deposit base.”

  Financial reform

  The CBI has attempted to introduce reforms to the banking system, as part of a wider effort to enable it to channel funding to the private sector.

  In early 2025, it increased the minimum issued and paid-up capital requirement to ID400bn ($305m), along with a requirement to establish correspondent banking relationships for foreign-currency trading. The plan was to increase these in ID50bn increments every six months, to hasten sector consolidation.

  However, of Fitch’s rated banks, just two – state-owned Trade Bank of Iraq and Mansour Bank, a subsidiary of Qatar National Bank – met the full capital requirement.

  “While a lot of banks managed to increase their capital, a number of them didn’t and have been struggling to improve their systems and compliance with anti-terrorism and anti-money laundering regulations,” says Hobeika.

  “These systems take a long time to improve, and it costs the banks too. For that reason, they have agreed with the central bank to postpone implementation to 2027/28.”

  The expectation is that the number of private Iraqi banks will shrink from 60 to about half that number by 2028.

  “Iraq’s banking sector is undergoing a significant overhaul, with the Central Bank pushing through higher capital requirements, improved anti-money-laundering compliance, and a shift towards commercial banks managing their own international correspondent relationships. These moves are welcomed,” says Bonilla.

  But the harder work remains, argues Bonilla: state-owned banks still carry high levels of non-performing loans, weak governance and a history of politically directed lending, while private sector credit remains among the lowest in the region.

  “The stakes are high as the IMF estimates that a comprehensive reform of the financial sector, alongside broader governance and regulatory changes, could double Iraq’s non-oil growth potential over the medium term, adding around 4 percentage points to GDP,” says Bonilla.

  “For now, the reforms address the plumbing. The structural transformation of a banking system to serve the private sector is still largely ahead.”

  Clouded outlook

  So far, Iraq’s financial system seems to have averted a worst-case scenario of large-scale deposit withdrawals related to the Iran conflict.

  Any deposit withdrawals seem to be more related to the introduction of a digital custom system ASYCUDA (Automated System for Customs Data) aimed at helping the government collect revenues, which saw a lot of traders trying to bypass the custom charges.

  “This drove some exporters or traders to source US dollars outside the banking system, in the parallel market, to avoid stricter requirements and up-front payment of customs duties. That has now eased,” says Hanna.

  Looking ahead, Fitch anticipates that most government financing is likely to come from the CBI through indirect purchases of government securities.

  The central bank’s total claims on the central government represented about 52% of the domestic debt stock and 25% of the total debt stock at end-2024, notes the agency.

  It envisages that a smaller portion will come from the government’s cash deposits, anticipated to fall to an average 12% by 2027.

  Fitch says the CBI’s balance sheet limits refinancing risks, while the FX reserves are large enough to absorb the expansion of that balance sheet without putting pressure on the exchange-rate peg with the US dollar.

  Surging foreign direct investment comes as a source of comfort, with annual inflows rising from around $2bn in 2022 to $5bn-$7bn from 2023 onwards. 

  Reform of the financial system will remain at the top of the new government’s in-tray.

  The regional environment is unconducive to this mammoth task, and it can only hope that an end to the conflict would support ongoing Iraqi efforts to build a financial system comparable to that of some of its Gulf neighbours.

  ---

  MEED’s June 2026 report on Iraq also includes:

  > OVERVIEW: Iraq enters era of resilience, reform and rising risks
  > OIL & GAS: Iraqi oil and gas sector in crisis
  > POWER & WATER: Focus shifts to delivery of Iraq utilities expansion
  > CONSTRUCTION: Momentum builds in Iraq’s post-war construction sector

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  James Gavin
• 
  Dubai opens prequalification for Jebel Ali STP expansion

  13 May 2026

  

   

  Dubai Municipality has issued a request for qualifications for the Jebel Ali sewerage treatment plant (STP) expansion – phase 3 project.

  The DS150/3 project will be delivered under a public-private partnership (PPP) model on a design, build, finance, own, operate and transfer basis.

  The project involves the development of a new water resource recovery facility with an ultimate treatment capacity of up to 1 million cubic metres a day (cm/d).

  It is being procured through Dubai Municipality’s Sewerage and Recycled Water Projects Department and will be delivered through a two-stage operational approach over a 30-year concession period.

  The bid submission deadline is 18 June.

  UK-headquartered Deloitte is acting as financial adviser, Aecom as technical adviser and CMS as legal adviser.

  Dubai Municipality said the project will also include additional land uses and community-focused amenities as part of broader sustainability and urban integration objectives.

  Phase one and two expansion

  In April, the deadline was extended for contractors to submit bids for an engineering, procurement and construction (EPC) contract covering the expansion of the Jebel Ali STP phases one and two.

  Located on a 670-hectare site in Jebel Ali, the original wastewater facility has a treatment capacity of about 675,000 cm/d following the completion of phase two in 2019, combining approximately 300,000 cm/d from phase one and 375,000 cm/d from phase two.

  The upgraded facility will be capable of treating an additional sewage flow of 100,000 cm/d, with the expansion estimated to cost $300m.

  The new bid submission deadline is 11 June.

  UK-headquartered KPMG and UAE-based Tribe Infrastructure are serving as financial advisers on the project.

  > Be recognised among the best in the industry at the MEED Projects Awards 2026 …

  

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  Mark Dowdall
• 
  Iraq LNG project delayed until next year

  13 May 2026

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  Iraq’s first liquefied natural gas (LNG) import terminal, which has an estimated project value of $450m, is now expected to become operational in 2027 due to delays caused by the regional war and disruption to shipping through the Strait of Hormuz.

  Work on jetty reinforcement and fixed terminal infrastructure at the Port of Khor Al-Zubair has been delayed, according to a statement from US-based Excelerate Energy, which is contracted to develop the facility.

  In its statement, the company said: “We are revising our full-year guidance to reflect the delayed startup of our Iraq terminal due to the ongoing conflict in the Middle East.”

  It added: “The Iraq project fundamentals remain unchanged. Looking ahead, we continue to have confidence in our sequenced earnings growth through 2028.”

  In October 2025, Excelerate signed a definitive commercial agreement with a subsidiary of Iraq’s Ministry of Electricity for the development of the country’s first LNG import terminal.

  The integrated project includes a five-year agreement for regasification services and LNG supply, with extension options, and a minimum contracted offtake of 250 million standard cubic feet a day (cf/d).

  Excelerate said: “Jetty reinforcement and construction of the fixed terminal infrastructure have been delayed temporarily due to the conflict in the Middle East and the terminal is no longer expected to commence operations in the third quarter of 2026 as previously disclosed.

  “Project startup is now expected in 2027. The long-term fundamentals supporting the project remain unchanged, driven by chronic power shortages and limited domestic gas processing capacity in Iraq.

  “Current conditions further reinforce the country’s need for reliable and scalable LNG import infrastructure and construction will resume as conditions allow.”

  Earlier this year, Iraq’s Ministry of Electricity said that the terminal was on track to come online on 1 June, ahead of expected gas shortages during the summer months.

  Then, in late April, the ministry said the project had been delayed by several months and was expected to come online in August at the earliest.

  Although Iraq is Opec’s second-largest oil producer after Saudi Arabia, it is a net natural gas importer because its lack of infrastructure investment has meant that, until 2023, it flared roughly half of the estimated 3.12 billion cf/d of gas produced in association with crude oil.

  Iraq’s reliance on flaring associated gas instead of gathering and processing it has prevented the country from fully realising its potential as a gas producer and forced the Iraqi government to rely on costly gas and electricity imports from Iran.

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  READ THE MAY 2026 MEED BUSINESS REVIEW – click here to view PDF

  Global energy sector forced to recalibrate; Conflict hits debt issuance and listings activity; UAE’s non-oil sector faces unclear recovery period amid disruption.

  Distributed to senior decision-makers in the region and around the world, the May 2026 edition of MEED Business Review includes:

  > AGENDA: War in the Middle East recalibrates global energy markets > REGIONAL LNG: War undermines business case for Middle East LNG > CAPITAL MARKETS: Damage avoidance frames debt issuance > IPOs: Regional IPO market dries up amid war  > MARKET FOCUS: Conflict tests UAE diversification > INTERVIEW: Desalination holds steady amid tensions, says Veolia CEO > LEGAL: Force majeure will not cure pre-existing construction industry breaches > BANKS:  GCC banks to feel the strain despite strong buffers > PIF STRATEGY: Public Investment Fund approves 2026-30 strategy

  To see previous issues of MEED Business Review, please click here

  https://image.digitalinsightresearch.in/uploads/NewsArticle/16803348/main.jpg

  Wil Crisp
• 
  Algeria turns the GCC oil crisis into an economic opportunity

  13 May 2026

  Commentary
  Wil Crisp
  Oil & gas reporter

  Algeria’s state-owned oil and gas company, Sonatrach, is taking advantage of concerns about global gas and crude supplies to sign deals and push ahead with major upstream projects.

  In recent weeks, the country has launched an oil and gas licensing round, taken steps to boost crude production in the short term and awarded a $1.1bn oil and gas field development project.

  This comes as shipping remains disrupted through the Strait of Hormuz, a key global oil and gas supply route. The disruption began after the US and Israel attacked Iran on 28 February 2026, triggering a regional war.

  Algeria’s ramp-up in activity puts it in a stronger position to benefit from higher global energy prices than neighbouring Libya, despite Libya holding Africa’s largest proven oil reserves.

  Libya challenges

  In Libya, officials have sought to advance oil and gas projects, but the business environment remains challenging due to recurring violence and deep political divisions.

  Last month, Libya’s rival legislative bodies approved a unified state budget for the first time in more than 13 years. The Central Bank of Libya confirmed on 11 April that both chambers had endorsed the budget, calling it a key step towards restoring financial stability after prolonged division.

  Contractors expected the agreement to accelerate project activity, but so far the deal has yet to translate into meaningful progress on the ground. Earlier this month, MEED reported that Libya’s state-owned National Oil Corporation (NOC) had not yet provided subsidiaries with details of their funding allocations under the new budget.

  Libya’s downstream sector was also disrupted this month by a fresh outbreak of violence. On 8 May, military clashes damaged buildings and vehicles, and forced the country’s largest operating refinery and a nearby oil port to shut for two days. On 10 May, Azzawiya Oil Refining Company, operator of the Zawiya facility, said it had lifted the state of emergency, allowing work to resume.

  Algeria momentum

  While Libya has struggled to capitalise on the current period of higher oil and gas prices, Algeria has significantly increased activity across its hydrocarbons sector.

  Last month, Algeria launched a new bid round offering seven exploration blocks to international companies. The round was launched by the National Agency for the Valorisation of Hydrocarbon Resources (Alnaft), which regulates the upstream sector. The blocks are located in Ouargla, Illizi, Touggourt and El-Bayadh.

  In parallel, Algeria is implementing short-term measures to raise output. On 3 May, the Ministry of Oil & Gas said the country plans to increase average production by 6,000 barrels a day in June.

  Algeria is also pursuing regional export opportunities. Earlier this month, officials signed a framework agreement to enable crude supplies from Algeria to Egypt.

  Turkiye has also announced plans to renew and expand its liquefied natural gas (LNG) agreement with Algeria. Turkiye’s Energy and Natural Resources Minister Alparslan Bayraktar said on 8 May that annual volumes could rise to 6.5 billion cubic metres, up from the current 4.4 billion cubic metres a year. The existing agreement is due to expire in September 2027.

  Another sign of momentum is the award of a $1.1bn contract for phase two of the Hassi Bir Rekaiz oil and gas field development. The contract was signed by Egypt’s Petrojet and Italian engineering and contracting company Arkad. Petrojet’s share is estimated at about $600m and Arkad’s at about $500m. The client is Groupement HBR, a joint venture of Sonatrach and Thailand’s PTTEP.

  Overall, while Libya continues to face obstacles to building sustained momentum in its oil and gas sector, Algeria is pursuing multiple initiatives that are likely to deliver economic benefits in the short, medium and long term.

  ---

  READ THE MAY 2026 MEED BUSINESS REVIEW – click here to view PDF

  Global energy sector forced to recalibrate; Conflict hits debt issuance and listings activity; UAE’s non-oil sector faces unclear recovery period amid disruption.

  Distributed to senior decision-makers in the region and around the world, the May 2026 edition of MEED Business Review includes:

  > AGENDA: War in the Middle East recalibrates global energy markets > REGIONAL LNG: War undermines business case for Middle East LNG > CAPITAL MARKETS: Damage avoidance frames debt issuance > IPOs: Regional IPO market dries up amid war  > MARKET FOCUS: Conflict tests UAE diversification > INTERVIEW: Desalination holds steady amid tensions, says Veolia CEO > LEGAL: Force majeure will not cure pre-existing construction industry breaches > BANKS:  GCC banks to feel the strain despite strong buffers > PIF STRATEGY: Public Investment Fund approves 2026-30 strategy

  To see previous issues of MEED Business Review, please click here

  https://image.digitalinsightresearch.in/uploads/NewsArticle/16803345/main4150.jpg

  Wil Crisp
• 
  Chinese-Saudi joint venture to build $566m copper plant

  12 May 2026

  Register for MEED’s 14-day trial access 

  Saudi Arabia-based industrial investment company Rawas and China’s Zhejiang Hailiang Company have signed a joint-venture agreement to establish a copper products manufacturing plant in the kingdom.

  The joint venture, in which Zhejiang Hailiang will hold 51% and Rawas 49%, plans to invest about $566m in the facility, which will be built near Dammam port in Saudi Arabia’s Eastern Province.

  The factory will be developed in two phases, with total production capacity projected at 150,000 tonnes a year (t/y). This includes 30,000 t/y of copper tubes, 20,000 t/y of copper busbars, 50,000 t/y of refined recycled copper and 50,000 t/y of copper foil.

  “The project will fully leverage Saudi Arabia’s local copper ore resources, energy cost advantages and regional policy incentives to serve markets across the Middle East, Europe and Africa,” the partners said in their statement.

  Shenzhen Stock Exchange-listed Zhejiang Hailiang is a subsidiary of Hailiang Group, one of the world’s largest copper pipe manufacturers and exporters.

  Rawas is based in Riyadh. Obeikan Investment Group and Al-Khorayef Group are among its founding shareholders, while other investors include Al-Muhaidib Group and Mohammed Abunayyan Investment Group.

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  Indrajit Sen