Iraq is drafting its 2027 budget based on a price of $58 per barrel of oil. This price is significantly lower than what the country needs for financial balance. The budget draft is based on daily exports of about 4 million barrels of oil, including exports from the Kurdistan region, and total expenses of 217 trillion dinars (approximately $166 billion).
Budget Deficit and Need for Increased Revenue
Although Iraq expects to generate an annual gross income of $85 billion from oil exports, assuming exports of 4 million barrels per day and a price of $58 per barrel, this amount is not sufficient to cover government expenses. Estimates from the International Monetary Fund indicate that the breakeven oil price for Iraq in 2025 will be around $92.43 per barrel. Therefore, if the oil price remains on average at $58 next year, Iraq will face a budget deficit of over 40 trillion dinars.
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Impact of Currency Fluctuations and Production Challenges
The Iraqi government also plans to reduce the value of the dinar to between 1400 and 1500 dinars against the US dollar, while its current value is around 1300 dinars. This action is due to the fact that Iraq sells its oil in dollars but pays its expenses in dinars, and the depreciation of the dinar increases the local value of each dollar exported. However, this issue raises the costs of imported goods.
Oil continues to provide the majority of Iraq's government revenue, making Baghdad vulnerable to any disruptions in production or exports. This vulnerability was clearly evident this year, as the Iran war led to disruptions in transportation through the Strait of Hormuz, which has historically been Iraq's main export route. Consequently, Baghdad had to send more shipments through Turkey and seek longer-term options through Syria and Jordan.
Iraq also intends to significantly increase its production, aiming to reach 8 to 10 million barrels per day within six years. This clearly indicates Iraq's need to boost production, find more export routes, and achieve oil prices higher than $58 to meet its projected expenses.
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