Iraq faces 2025 fiscal squeeze amid oil price decline, says PM’s adviser 

Iraq faces a budget crunch in 2025 due to the slump in the price of oil, the overwhelming source of government revenue, according to a top economic adviser to Prime Minister Mohammed Shia Al-Sudani.

“We don’t anticipate major problems in 2024, but we need stricter financial discipline for 2025,” Mudher Saleh told Reuters in an interview late on Monday.

Iraq is OPEC’s second-largest producer, and is heavily dependent on oil revenues. The hydrocarbons sector accounts for the vast majority of export earnings and some 90 per cent of state revenue. This huge reliance on oil makes Iraq particularly vulnerable to fluctuations in global crude prices.

Nevertheless, Iraq increased its budget in 2024 even after record spending in 2023, when more than half a million additional employees were hired by the already-bloated public sector and a capital-intensive nationwide infrastructure revamp began.

The 2024 budget rose to 211 trillion dinars ($161 billion) from 199tn dinars ($153bn) in 2023, maintaining a projected deficit of 64tn dinars, explained Saleh.

The budget assumes an oil price of $70 per barrel in 2024, around $6 less than the likely average price this year.

Saleh pointed out that paying salaries and pensions on time remains a top priority. They account for 90tn dinars ($69bn), or over 40 per cent of the budget, and are a key factor of social stability in Iraq. “The government will pay salaries even if it costs everything,” he said. “Salaries are sacred in Iraq.”

Infrastructure development, meanwhile, could be refocused on the most strategic projects — such as key road and bridge works in the capital Baghdad — if the state finds itself in a financial crunch, said the adviser.

To bolster finances, Iraq is focusing on increasing non-oil revenues through improved tax collection but is not exploring any new levies, added Saleh. He estimated that Iraq loses up to $10bn annually due to tax evasion and customs-related problems.

Concerns for the 2025 budget reflect a challenging global oil market. Oil prices have been on a downward trend since mid-2022, with Brent crude, the international benchmark, falling from over $120 per barrel to below $75 in recent days. This decline is attributed largely to weakening global demand, particularly from China, the world’s largest oil importer, as its economic growth slows down.

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