Iraq’s Budget Deficit Jumps 346% to $23.9 Billion as Oil Revenues Halve

Iraq’s budget deficit surged by 346 per cent year on year to 36.26 trillion Iraqi dinars ($23.9 billion) in the first nine months of 2026, as a sharp fall in oil revenues placed additional pressure on the country’s public finances.

Government expenditure reached 89.08 trillion dinars through September, while total revenues amounted to 52.82 trillion dinars, according to figures published by the Iraqi Ministry of Finance. Revenue covered just 59.3 per cent of government spending, leaving a substantial funding gap.

The deterioration was driven largely by a 50.8 per cent decline in oil revenues, highlighting Iraq’s exposure to fluctuations in crude exports. Disruptions to production and shipments linked to the wider Middle East conflict have added to the financial strain.

The World Bank’s October 2026 Macro Poverty Outlook projects that Iraq’s economy will contract by 12.4 per cent this year, citing the impact of the conflict on oil production and exports.

Iraq was already facing fiscal challenges before the latest disruption. Its dependence on oil income, combined with rising public expenditure, has left government finances vulnerable to changes in global energy markets.

The International Monetary Fund said in its 2025 Article IV consultation that the oil price required for Iraq to balance its budget had increased to around $84 a barrel in 2024, compared with $54 in 2020. Before the latest disruption to exports, the IMF had projected a fiscal deficit equivalent to 9.2 per cent of gross domestic product in 2026.

The Finance Ministry figures showed that current expenditure accounted for 85.68 trillion dinars, or 96.2 per cent of total spending. Investment expenditure stood at just 3.40 trillion dinars, representing 3.8 per cent.

Employee compensation was the largest spending category at 46.13 trillion dinars. Social welfare allocations amounted to approximately 20.57 trillion dinars, while debt servicing cost the government 7.95 trillion dinars.

Oil revenues and mineral royalties remained the main source of income, contributing 38.56 trillion dinars during the period. Other revenues totalled around 5.54 trillion dinars, while commodity taxes and production fees generated 3.13 trillion dinars.

Iraq has been attempting to maintain crude exports through alternative routes as shipping through the Strait of Hormuz remains disrupted. The Oil Ministry said on September 21 that average daily exports for the month up to that date were approximately 2.6 million barrels, including shipments transported outside the strait.

The ministry also clarified that a previously reported export volume of four million barrels referred to a single day rather than the monthly daily average.

The widening deficit highlights the challenge facing Baghdad as it seeks to sustain public spending while lower oil income threatens its main source of government revenue.