Iraq has not paid July salaries to many public employees, with the country still struggling to close a fiscal gap due to plummeting oil revenue caused by the closure of the Strait of Hormuz.
Iraq, Opec’s second-largest producer, has been hit hard by the Iranian blockade of the waterway since the regional war broke out in late February.
Its oil exports have plunged from about 100 million barrels in February to about 32.1 million in May and June, according to Oil Ministry figures.
That has caused oil revenue – which account for at least 90 per cent of the state budget – to collapse from $6.8 billion in February to about $2.3 billion in May and June.
Iraq spends about $6.5 billion a month on salaries, pensions and social welfare, according to the Ministry of Finance.
Other significant financial commitments include fees for energy companies, purchases of natural gas and electricity from Iran, and unpaid state debts for bondholders, contractors and farmers.
On Monday, Iraqi Finance Minister Falih Sari formally asked to appear before parliament to discuss the “current financial and economic situation in the country and outlining the major challenges facing public finances amid the ongoing regional changes”.
A senior official at the Finance Ministry told The National that “if the exports disruption continues, we will not be able to pay salaries in time from now on”.
Among the measures under consideration is paying salaries every 45 days. “We will pay whenever we have cash. Or those who got paid in time for July will be paid late for August,” the official said.
The central bank's foreign currency reserves have also come under strain, falling by 6.3 per cent since the end of last year to reach $91 billion at the end of May.
Looking north
For the first time since the outbreak of the Iran war, Iraq managed to push its crude exports slightly higher in July, reaching about 42 million barrels, according to Ali Al Shatari, director general of the State Oil Marketing Organisation.
Speaking to local media on Monday, Mr Al Shatari said 35.5 million barrels were shipped from southern Gulf terminals, while about 7 million were sent through the Iraq-Turkey pipeline to the Ceyhan terminal on the Mediterranean.
“This is a success story, but this does not meet the aspirations,” Mr Al Shatari said. He added that the government was pursuing a strategic vision to develop Iraq's oil sector and boost exports through Turkey.
On Saturday, Iraq and Turkey extended their oil export agreement, which had expired late last month, by another year. The new agreement, under which Iraq is to pump 750,000 barrels of oil a day, was intended to give the countries time to reach comprehensive terms covering a range of sectors, mainly energy.
Under the agreement, Iraq will pay a tariff of $1.62 a barrel for oil moved through Turkey, Mr Al Shatari said on Monday. The fee covers the operation and maintenance of the pipeline by Turkish state energy company Botas.
Iraq now pumps between 40,000 and 60,000 barrels a day to Ceyhan, down from about 240,000 barrels since the war began, with many oilfields in the Kurdistan Region having closed down operations due to the fragile security situation, Mr Al Shatari said.
Iran and its proxy militias have resumed drone and missile attacks on US bases and Iranian Kurdish opposition groups in the region.
Additional crude will be moved from Kirkuk and Basra by tanker to increase the pipeline's throughput to 750,000 barrels a day.
The timing of the agreement with Turkey reflects heightened concern in Baghdad over the Strait of Hormuz, the chokepoint through which the country had previously shipped about 80 per cent of its oil.
Iraqi officials have asked Iran to allow ships carrying Iraqi crude to cross the waterway. Iran previously promised to grant Iraqi vessels an exemption from the blockade, but officials in Baghdad say not all of the ships have been allowed to pass.
On Monday, Iraqi Oil Minister Bassim Khudair told state media that talks were under way with Iran to discuss the “smooth flow of oil tankers through the Strait of Hormuz, amid hopes of reaching an understanding in the coming days”.
