Iraq's Economic Outlook Deteriorates as Oil Price Pressures Mount on GDP

Fitch Ratings has highlighted significant challenges facing Iraq’s economy in 2025, with the country’s financial position expected to weaken considerably. The gap between government income and spending will expand to 9.7 percent of Iraq’s GDP this year, a dramatic shift from the 2.7 percent deficit recorded in 2024. This deterioration stems primarily from reduced oil revenues, as crude prices remain under pressure, combined with anticipated increases in government expenditures related to upcoming parliamentary elections.

Oil Dependency Creates Structural Vulnerability

Iraq’s economy remains heavily reliant on petroleum exports, which account for approximately 40 percent of GDP and represent 90 percent of all government revenue. This concentration leaves the nation particularly vulnerable to commodity price fluctuations. Production volumes declined by 6 percent during 2024, falling to 3.8 million barrels per day as OPEC+ members adjusted output to address previous overproduction. However, forecasters anticipate a recovery phase ahead as production quotas normalize and Kurdish region exports expand.

Debt Trajectory and Financing Challenges

Fitch projects that Iraq’s debt burden will climb substantially through 2027. The debt-to-GDP ratio is expected to reach 54.1 percent by the end of 2025, escalating further to 62.5 percent by 2027, assuming Brent crude trades around $65 per barrel. Government financing is anticipated to rely heavily on the Central Bank of Iraq, which will likely purchase securities indirectly. Additional funding may come from Iraq’s substantial cash reserves, which totaled 17 percent of GDP at the conclusion of 2024.

Medium-Term Fiscal Projections

Over the 2026-2027 period, deficits are forecast to average 8.8 percent of GDP. Despite these challenges and structural concerns including governance weaknesses and political instability, Fitch maintained Iraq’s long-term foreign-currency issuer default rating at “B-”, acknowledging the country’s commodity dependency and fiscal constraints.

Energy Sector Recovery Plans

To address production shortfalls, Iraq has secured major partnerships with international oil companies. Chevron and ExxonMobil from the United States, along with BP from the United Kingdom, have committed to development projects. These initiatives build on the broader $27 billion multi-energy partnership with France’s TotalEnergies, which was established in 2023. Production is expected to grow approximately 6 percent annually once OPEC+ voluntary production restrictions conclude, potentially averaging 4.3 million barrels per day across 2025-2027.