Iraq

Iraq declared force majeure on all oilfields operated by foreign companies on March 20, 2026 — a legal measure that suspends contractual obligations and absolves non-performance liability — after military operations disrupted navigation through the Strait of Hormuz and halted most of the country's crude exports. The decision was communicated in a letter from the oil ministry dated March 17, seen by Reuters.

The immediate production collapse is severe. Basra Oil Company output was cut to 900,000 barrels per day from 3.3 million barrels per day as southern port exports were halted. Total national production fell to approximately 1.4 million barrels per day — less than a third of pre-crisis levels. The produced quantities are being directed entirely to operate domestic refineries.

International oil companies operating in Iraq were unable to nominate tankers to lift crude, blocking exports even though SOMO was ready to load shipments. The ministry ordered a full shutdown of production at affected concession areas, invited companies to urgent talks on essential operations, and said the decision would be reviewed periodically depending on regional developments.

The standard response to Hormuz disruption is to redirect Iraqi crude northward through the Kirkuk-Ceyhan pipeline to the Turkish port of Ceyhan on the Mediterranean. This alternative does not work at scale.

The Kirkuk-Ceyhan pipeline carries approximately 200,000 barrels per day at current capacity — about 6% of the 3.3 million barrels per day exported from Basra in February 2026. Even at theoretical maximum utilisation, the northern route cannot compensate for the loss of southern exports. The pipeline has been operating well below its 1.6 million barrel per day design capacity due to the unresolved KRG-Baghdad revenue dispute that has restricted northern exports since March 2023.

A further complication: diverting Kirkuk crude for export would deprive refineries and power plants in northern Iraq of critical feedstock. Iraq's limited pipeline network may not be able to deliver sufficient replacement volumes from Basra to the north. The political hurdles — requiring coordination between Baghdad and the Kurdistan Regional Government — add additional friction at a moment when governance capacity is already under strain.

A proposal to build a pipeline from southern Iraq to Jordan's Aqaba port on the Red Sea — which would have provided genuine Hormuz bypass capability — was abandoned years ago due to lack of government consensus and funding. An Iraqi official told The National: "It would have been very useful to us during this difficult time." The alternative now under discussion — transporting crude by lorry to Aqaba — is not viable at the volumes required.

The Kurdistan Regional Government controls approximately 400,000-500,000 barrels per day of production in northern Iraq, exported via the Kirkuk-Ceyhan pipeline through Turkey. In March 2023, an international arbitration tribunal ruled in favour of Iraq in a dispute with Turkey over KRG crude exports — and Turkey halted pipeline flows in compliance with the ruling. The pipeline has carried only a fraction of its 1.6 million barrel per day capacity since.

The dispute is structural: the KRG wants to sell its crude independently and receive direct payment; Baghdad insists on centralising export revenue. In February 2025, Iraq's parliament passed a budget amendment requiring the federal government to pay independent oil companies operating in the KRG $16 per barrel for crude sold through the pipeline — an attempt to restart flows that has had only partial success.

The result is that Iraq entered the Hormuz crisis of March 2026 with its only viable alternative export route already operating at 12% of capacity. The structural failure to resolve the KRG dispute — compounded by the abandoned Aqaba pipeline proposal — left Iraq with no viable fallback when its southern terminals were shut.