Iraq struggles to pay public salaries as Strait of Hormuz crisis deepens

Public employees in Iraq are grappling with delayed salary payments as the nation battles an oil export crisis stemming from the ongoing closure of the Strait of Hormuz, according to reports from Arab media outlets. The Finance Ministry reveals that Iraq allocates around $6.5 billion monthly to cover public sector salaries, pensions, and social welfare disbursements.

A senior ministry official warns that "if the export disruption continues, we will not be able to pay salaries in time from now on," explaining that "we will pay whenever we have cash. Or those who got paid in time for July will be paid late for August." Considering the mounting risk and cost of conducting business in the region, plans are being discussed to address the situation by extending the salary payment interval to every 45 days.

Iraq's oil exports have plummeted from 100 million barrels in February to approximately 32 million barrels in May and June, as per figures provided by the Oil Ministry. The oil export crisis has adversely affected Iraq's economy, which had previously seen a decline in poverty from 23% to 17.5% over the past three years, as reported by the Multidimensional Poverty Index.

Although Iran has pledged an exemption for Iraqi vessels navigating the strait, some Iranian boats targeted Iraqi vessels during the conflict. Iranian drone boats attacked two fuel-carrying vessels from Iraq in mid-March. Despite Baghdad's attempts to mitigate the impact of the blockade, such as a one-year agreement with Turkey for continued exports via the Iraq-Turkey pipeline, the country remains billions of dollars in deficit due to the disruption in oil exports.

In an effort to alleviate the effects of the blockade, Iraq has engaged in discussions with Turkey and has implemented a transit arrangement with the pipeline, covering a daily capacity of 750,000 barrels. Additionally, Iraq is offering discounts of nearly $30 per barrel on Basra crude, with hopes that the price cuts will entice potential buyers to accept the risks associated with shipping through the region.

Oil expert Asem Jihad explains that these discounts do not indicate an oil surplus but rather reflect the escalating risk and cost of conducting business in the area.