Iraqi Civilians Are Paying the Price of the Iran War

Why It Matters

Iraq’s fragile economy and limited fiscal buffers mean the war could quickly translate into unpaid salaries, deeper inflation, and civil unrest, destabilising a key oil‑dependent region. The situation underscores the strategic vulnerability of countries that depend on external energy supplies amid geopolitical conflict.

Key Takeaways

• Oil export disruptions threaten Iraq's state budget
• Electricity generation relies on Iranian gas imports
• Food prices rose 15‑25% amid conflict
• Dinar depreciation reduces household purchasing power
• Public protests risk intensifying over service failures

Pulse Analysis

Iraq’s economy is tightly tethered to oil revenues, with more than 90% of state income derived from crude sales. The recent Iranian attacks on tankers in the Gulf and Baghdad’s force‑majeure on foreign‑run oilfields have choked export flows, squeezing the $97 billion reserve pool and leaving the government with only a two‑month runway before salary payments become unsustainable. This fiscal strain is magnifying inflation, as basic food items climb up to a quarter in price and the dinar slides from 1,300 to roughly 1,550 per dollar on the black market.

The country’s electricity system, long dependent on imported Iranian natural gas for over 30% of generation, is now exposed to geopolitical shocks. Israel’s strike on Iran’s South Pars field temporarily halted gas deliveries, prompting a partial resumption that leaves little margin for further disruptions. With generation capacity capped at 24‑28 GW against a projected 57 GW summer peak, any additional supply shortfall could trigger widespread blackouts, echoing the March nationwide outage that sparked public anger.

Beyond the economic toll, the war is amplifying Iraq’s political fragility. Years of corruption and uneven public services have eroded state legitimacy, and rising living costs are reigniting protests that previously targeted elite patronage and foreign influence. As the government struggles to maintain salary payments and electricity supply, the risk of large‑scale civil unrest grows, potentially reshaping Iraq’s internal power dynamics and its role in the broader Middle‑East energy landscape.