Iraq’s oil production has crossed 3 million barrels per day (bpd), but the country is unable to ship all of its crude through its southern export terminals as traffic through the Strait of Hormuz remains severely restricted.
Iraqi Oil Ministry spokesperson Saleem al-Rikabi told Reuters on Monday that production from all Iraqi fields had exceeded 3 million bpd, while exports from the country’s southern ports stood at about 2.2 million bpd.
That leaves a gap of at least 800,000 bpd between production and southern exports. The Strait of Hormuz normally carries about one-fifth of global oil supplies. Fewer than 20 commodity vessels crossed the waterway over the weekend, according to shipping data cited by Reuters.
For Iraq, the disruption is particularly significant because much of its crude exports leave through southern terminals and must pass through Hormuz.
Why can’t Iraq ship all its oil?
The problem is not a shortage of crude but the ability to move it to international buyers. Iraq’s southern terminals can currently handle about 2.2 million bpd of exports, compared with production of more than 3 million bpd, according to Reuters report.
The difference does not mean that all of the additional crude is permanently stranded. But restricted shipping through Hormuz has created a bottleneck between production and overseas markets.
Baghdad has been looking for alternative routes. Reuters reported on August 13 that TotalEnergies’ trading arm Totsa had offered Iraqi crude for loading outside the Strait of Hormuz. The move showed how traders and producers were looking for ways to move Iraqi barrels while traffic through the waterway remained disrupted.
Iraq has also been working to strengthen its northern export route through Turkey. On August 1, Iraqi state news agency INA reported that Baghdad expected to sign an extension to its pipeline agreement with Turkey.
The route could give Iraq another way to move crude to international markets without relying entirely on its southern terminals and Hormuz. However, the August 1 report did not specify how much additional export capacity the extension would provide.
Iraq has also received limited relief from Iran. Iran granted permission for several Iraqi oil tankers to pass through Hormuz after repeated requests from Baghdad, Iran’s state news agency IRNA reported on August 22.
That allows some Iraqi cargoes to move through the chokepoint, but does not remove the wider shipping constraint.
What does the disruption mean for oil prices?
The disruption has also kept oil markets focused on the risk of tighter supplies. Brent crude futures fell $1.55, or 1.64%, to $92.84 a barrel at 0911 GMT on Monday, while US West Texas Intermediate crude fell $2.04, or 2.34%, to $85.02 a barrel, according to Reuters report.
Both benchmarks had gained more than 5% the previous week as stalled US-Iran peace negotiations raised concerns about continued restrictions on shipments through Hormuz.
The latest decline came as traders awaited the US response to Iran. US Treasury Secretary Scott Bessent was due to hold a press conference on August 24, with Washington expected to announce further measures against Tehran.
Bessent has threatened what he called the “toughest sanctions in history” against Iran. US President Donald Trump has also threatened sanctions against countries and companies that continue to trade with Tehran.
Stricter sanctions could further reduce Iranian oil exports and increase pressure on regional supply. PVM analyst Tamas Varga told Reuters that an embargo could reduce oil supplies from the region. He also said the US could tighten its naval blockade of Iranian oil exports, while Iran could respond with attacks on oil infrastructure.
Iran has rejected the planned US measures, with President Masoud Pezeshkian calling for a diplomatic solution. Pakistan’s army chief was also in Tehran on Monday for mediation talks ahead of the expected US announcement, according to Reuters.
Can Iraq increase exports without relying on Hormuz?
Iraq is trying to develop alternative ways of moving its crude as it plans to significantly increase production. The country aims to raise oil output to between 8 million and 10 million bpd within six years, according to a Reuters report published on August 21.
But increasing production will have limited value if export infrastructure does not expand at the same pace.
The northern pipeline through Turkey could provide some additional flexibility. An extension of Iraq’s pipeline agreement with Turkey could help Baghdad move more crude through the route, although the available report does not specify how much additional capacity would be created.
Iraq’s efforts to secure passage for tankers through Hormuz provide another, more immediate, option. Iran’s decision to allow some Iraqi vessels through could help move individual cargoes, but it does not solve the broader disruption.
The situation also comes as oil markets assess the possibility of a prolonged disruption in the Middle East.
Morgan Stanley analysts said Brent could reach $100 a barrel in the fourth quarter, according to Reuters. The bank raised its Brent forecasts after crude prices recovered to around $92 from about $71 in June, citing declining inventories and expectations that Middle East disruptions could last longer.
For Iraq, however, the immediate problem is more specific. The country has oil. The challenge is getting it to buyers.
With production above 3 million bpd and southern exports at about 2.2 million bpd, Iraq is increasingly dependent on alternative routes and limited access through Hormuz to prevent the shipping bottleneck from becoming a bigger constraint on its oil exports.