Iran Blockade of Strait of Hormuz Cripples Iraqi Economy

The Government of Iran has blockaded the Strait of Hormuz following U.S. and Israeli attacks on February 28, 2026. The blockade has crippled the Iraqi economy by halting crude oil exports and reducing southern Iraq's oil production by more than 70%. In Basra province, output plummeted from 3.1 million barrels per day to approximately 900,000.

Beyond oil, the blockade caused dry bulk volumes to drop 83 percent between February and March, severely impacting global shipments of fertilizers, steel, and grain to China, India, Brazil, and Africa. Within Iraq, the primary deep-water port at Umm Qasr is operating at half capacity. Consequently, Iraq now relies on the United Arab Emirates as its sole gateway for imported goods through costly shipping and trucking workarounds.

Regional instability is further compounded by drone and missile attacks targeting U.S. military bases and energy infrastructure. Facilities operated by BP and Kellogg Brown & Root LLC were hit, prompting hundreds of international oil workers to flee. With trade disrupted at the Shalamcha border crossing and two tankers destroyed in Iraqi waters on March 11, experts warn the Iraqi government may exhaust its funds by mid-May and will be forced to issue bonds.