Iraq Oil Fiscal 2026: The SOMO Barrel, the Sudani Wage Bill, and a Pipeline Still Closed

Production baseline and the closed pipeline #

Iraq's federal sustainable production capacity sits near 4.30 million barrels per day on OPEC Monthly Oil Market Report secondary sources, with current OPEC plus quota at 4.00 million barrels per day after voluntary cuts. SOMO loadings from Basra Oil Terminal, Khor al Amaya, and the offshore single point moorings averaged 3.40 million barrels per day for export through 2025, with another 0.55 million absorbed by domestic refineries at Daura, Basra, Baiji, and Karbala. The Karbala refinery, commissioned in 2023 by a Hyundai, GS, SK Engineering consortium for 6 billion dollars, runs near 140,000 barrels per day on Basra Light feed.

The Iraq Turkey Pipeline (ITP) has been shut since March 25, 2023, when the International Chamber of Commerce tribunal in Paris ruled for the federal government of Iraq and ordered Turkey to pay 1.49 billion dollars in damages for unauthorized transport of KRG crude between 2014 and 2018. The line historically carried 450,000 to 500,000 barrels per day to Ceyhan. The cumulative revenue impact, against average Brent of 78 dollars and KRG netbacks 8 to 12 dollars below Brent, is between 9 and 11 billion dollars across the thirty seven month closure, split roughly half between federal treasury and KRG entitlements under the Article 112 sharing formula.

The southern envelope is binding. Basra Oil Terminal nameplate is 1.8 million barrels per day, Khor al Amaya 0.6 million, and the offshore SPMs add 3.6 million collectively, but weather and pump station bottlenecks cap realized export near 4.0 million. The Common Seawater Supply Project, sized at 5 million barrels per day of reservoir injection, slipped from a 2025 target to mid 2027 under the ExxonMobil to CNOOC handover.

The federal budget and the tri-year framework #

The 2023 to 2025 tri-year framework, Federal Public Law 13 of 2023, was the first multi-year budget passed by the Iraqi parliament since 2003. The 2024 envelope, under finance minister Taif Sami, totaled 198.9 trillion dinars (152 billion dollars at the 1,310 peg), revenue at 144.4 trillion, and a planned deficit of 64.3 trillion. The IMF Article IV 2024 staff report estimated the central government break-even Brent at roughly 92 dollars per barrel, above the 80 to 85 dollar 2024 average and well above the 71 dollar 2025 average.

The expenditure structure is the durable problem. Wages, pensions, and social transfers run above 60 trillion dinars, north of 50 percent of total spending and 22 percent of non-oil GDP. Federal payroll headcount passed 4.5 million in 2024 on Ministry of Finance figures, up from 3.0 million in 2019, with the largest hires in Interior, Defense, and the Popular Mobilization Forces (Hashd al Shaabi) integrated payroll. Investment spending ran 38 trillion in 2024 budget intent against 22 trillion in actual disbursement, a 42 percent execution shortfall typical of the post 2014 pattern.

The 2026 to 2028 follow-on framework is contested. The Council of Ministers submitted a draft in November 2025 keeping the 1,310 peg and assuming 70 dollar Brent, with a 71 trillion dinar deficit to be financed through CBI advances, domestic Treasury bills via Trade Bank of Iraq and Rasheed Bank, and a planned 1.5 billion dollar eurobond, the first since 2017. Parliament has stalled on three points: the wage bill ceiling, the KRG transfer mechanism, and the constitutional debt-to-GDP threshold, currently breached if KRG arrears are consolidated.

The KRG dispute and the Ceyhan negotiation #

The federal-KRG revenue sharing dispute is the second-order political fault line of every Iraqi budget cycle. Articles 111 and 112 of the 2005 constitution assign oil and gas to federal and producing-governorate authorities jointly, with revenue shared by formula. The Federal Supreme Court ruled in February 2022 that the KRG Oil and Gas Law of 2007 is unconstitutional and ordered crude marketing handed to SOMO. The KRG, under a KDP-PUK power sharing arrangement led by Prime Minister Masrour Barzani, has resisted, citing production sharing contract commitments to international oil companies operating in the region.

The Ceyhan reopening negotiation has three movable parts. First, the federal-KRG split, where Baghdad offers 12.67 percent against the KRG's claim of a higher share plus arrears. Second, the IOC compensation regime, where DNO, Genel Energy, Gulf Keystone, HKN, ShaMaran, and Chevron require per-barrel fees the federal Ministry of Oil considers above SOMO's south Iraq terms. Third, the Turkish demand for ICC award offset against transit fees, the quasi political condition stalling the SOMO Botas technical settlement. A draft bilateral memorandum signed in October 2025 anticipated a phased restart at 200,000 barrels per day rising to 400,000, but no loadings have occurred. The KRG salary backlog through 2024 and 2025 is the political pressure point into the 2026 federal vote.

Halabja, the fourth governorate carved out of Sulaymaniyah by Council of Ministers Decision 14 of 2014 and ratified by federal law in 2024, completed its first independent budget in 2025. Its 0.7 percent share of the Article 112 envelope must be reconciled against the KRG's 12.67 percent claim, a small but symbolic adjustment to the federal-regional balance.

Total GGIP, Chinese oil for construction, and the capex stack #

The Total Energies Gas Growth Integrated Project (GGIP), originally signed September 2021 and reaching final investment decision in July 2023 on renegotiated commercial terms, is the largest western FDI commitment in Iraq's hydrocarbons since the 2009 Technical Service Contract round. The GGIP combines four interlinked projects: Ratawi crude development to 210,000 barrels per day, a 600 megawatt solar plant in Artawi, a 5 million barrels per day seawater treatment facility, and a 600 million standard cubic feet per day flared gas recovery project at Ratawi, West Qurna 2, Tuba, and Luhais. Capex envelope is 27 billion dollars over twenty five years, with Total at 45 percent, QatarEnergy 25 percent, Basra Oil Company 30 percent.

The Chinese oil for construction architecture, anchored by the Iraq China Framework Agreement of 2019, channels SOMO crude allocation through escrow at a designated Chinese bank to finance EPC contracts to Chinese state-owned firms. By April 2026 the framework had financed roughly 8 billion dollars of project commitments, including school construction by PowerChina, road and bridge work by CSCEC, and water infrastructure by Sinohydro. Upstream, CNPC operates Halfaya and partners on Rumaila, CNOOC operates Missan, and PetroChina with Sinopec hold stakes via the West Qurna 1 transition from ExxonMobil. The Sudani government extended the framework in October 2024 with a 5 billion dollar tranche tied to Faw port phase one to phase two and the Baghdad metro.

The non-Chinese stack remains thinner than headline announcements suggest. BP's Rumaila renegotiation, signed January 2024 and converted to a profit sharing structure March 2025, is the second largest western commitment after Total. ExxonMobil exited West Qurna 1 in February 2024 to PetroChina. Eni continues at Zubair, Lukoil at West Qurna 2 (with OFAC general licenses navigating the Russia sanctions overlay), and Petronas at Garraf. The Diwaniyah to Basra southern infrastructure corridor advanced through 2025 on a 2.4 billion dollar Korean Eximbank guaranteed package.

The dinar peg, the parallel rate, and OFAC compliance #

The Central Bank of Iraq has held the official rate at 1,310 dinars per dollar since the February 2023 revaluation from 1,460, the first regime adjustment since the December 2020 devaluation from 1,182. Gross international reserves stood at 105 billion dollars on the December 2025 CBI balance sheet, with gold holdings of 162 tonnes, together covering roughly 16 months of imports against the IMF adequacy benchmark of 5 to 6 months. The CBI dollar auction window processed roughly 240 million dollars per day on a five day rolling average through 2025, down from 280 million per day in 2023 on tighter end use documentation.

The parallel market rate, observable through Hawala dealers in Karrada and Erbil, traded at 1,375 to 1,395 dinars per dollar through Q1 2026, a spread of 5 to 6 percent, the narrowest sustained gap since the 2020 devaluation. The compression reflects the US Treasury OFAC compliance regime imposed on the CBI through 2023 and 2024, which forced the unwinding of correspondent banking at twenty eight Iraqi private banks and migrated dollar settlement onto SWIFT message-by-message clearance. The Federal Reserve Bank of New York applied screening with a six business day average release lag through 2024, compressing to two days by Q1 2026 as documentation stabilized.

The friction has a distributional consequence. Importers without bank-of-record dollar access pay the parallel rate and pass it to consumers, while those with auction access receive dollars at official. The implicit transfer is 1.5 to 2.0 billion dollars per year. The Cabinet Office issued a directive in November 2025 expanding auction eligibility to thirteen previously delisted banks under conditional OFAC engagement, an early signal of normalization that would, if completed, eliminate the parallel premium in the 2026 cycle.

The 2026 election, Sudani durability, and the outlook #

Iraq's parliamentary election is scheduled for October 11, 2026, ending the term that began with the December 2021 election and the October 2022 government formation. Prime Minister Mohammed Shia al Sudani, who took office October 27, 2022, on a Coordination Framework coalition that excluded the Sadrist current after Muqtada al Sadr's withdrawal, has held the cabinet stable for forty two months, the longest unbroken tenure since Nouri al Maliki's first term. Coordination Framework dynamics, the Iran-aligned militia constellation, and Sadrist participation are the three political variables that will shape the campaign.

The fiscal arithmetic is tight but not stressed. Brent at 70 to 75 dollars through 2026 yields federal oil revenue near 95 to 100 billion dollars at 3.40 million barrels per day exported. Against a 152 to 160 billion dollar expenditure plan with 60 billion of wages and pensions, the residual gap is 30 to 35 billion dollars financed through non-oil revenue (10 to 12), Treasury bills (8 to 10), CBI advances (5 to 8), and the eurobond (1.5). The cushion is thin: a 10 dollar fall in Brent removes 12 billion from revenue, larger than any single financing instrument.

The structural outlook depends on three contingent variables tracked in the Strategos OMC monitoring framework. First, whether the ITP through Ceyhan reopens, lifting KRG exports and lowering the federal break-even by 4 to 6 dollars. Second, whether GGIP and the Common Seawater Supply Project deliver the southern reservoir pressure maintenance the Ministry of Oil's 6 million barrels per day 2030 target requires. Third, whether the 2026 to 2028 tri-year framework passes parliament with a credible wage bill ceiling, the anchor that would let CBI normalization complete without renewed peg pressure. None is stalled in April 2026, none has cleared, and the election is the binding window.

Sources #

• Iraq Crude Oil Export Statistics, monthly bulletins
• OPEC Monthly Oil Market Report, secondary sources production tables
• Iraq, Article IV Consultation Staff Report and Selected Issues
• Oil Market Report, country supply tables
• ICC arbitration award, Republic of Iraq versus Republic of Turkey, March 2023
• Federal Public Law 13 of 2023, three year general budget of the Republic of Iraq
• Central Bank of Iraq monthly bulletin, foreign reserves and dollar auction window
• Iraq oil sector and Baghdad political coverage
• Iraq crude assessments and KRG production tracking
• Recent Economic Developments and Reform in Iraq
• Total Energies Gas Growth Integrated Project disclosures
• OFAC Iraq related sanctions guidance and general licenses