As the war in Iran continues to escalate, Iraq and the Kurdistan Region have not only been caught in the geopolitical crossfire, but they are also facing growing threats to the very foundations of their economic stability.
Oil exports remain the backbone of both Iraq’s national economy and the Kurdistan Region’s fiscal revenues. Yet the ongoing conflict is increasingly exposing structural vulnerabilities across the country’s energy sector. These vulnerabilities extend beyond the physical security of oil fields and export terminals to include the reliability of domestic transportation infrastructure, the safety of maritime routes, and the limited availability of alternative export corridors to global markets.
Iraq’s oil exports, from southern fields via Strait of Hormuz which amounts to around 95 percent of its total export, have been halted due to the security situation forcing the central government to reach out to the Kurdistan Region to export some 300,000 barrels per day according to a statement from the oil ministry. However, officials from the Kurdistan Regional Government have said that before they could agree to exporting oil via Kurdistan Region’s pipeline, Baghdad must stop strangulating the region over customs revenue.
Before the war, Iraq and the Kurdistan Region together produced approximately 4.65 million barrels of crude oil per day. Of this total, the Kurdistan Region accounted for roughly 300,000 barrels per day, while federal Iraq produced around 4.35 million barrels per day.
The consequences of these disruptions extend well beyond the immediate decline in production and exports caused by the closure of the Strait of Hormuz and attacks by armed groups on energy infrastructure and supply routes. While Iraq is estimated to be losing roughly $220 million in oil revenue per day, the immediate fiscal shock alone does not capture the full scale of the risk facing the sector. The Central Bank of Iraq (CBI) has indicated that its foreign currency reserves could sustain government expenditures for up to twelve months, which may temporarily cushion the impact on public finances.
However, the longer-term implications for investment in Iraq’s energy sector may be far more serious. Large-scale international energy projects are particularly sensitive to geopolitical instability and security risks. For example, the suspension or delay of just two major energy agreements - those involving BP and Total Energies, with a combined estimated value of around $52 billion - could significantly undermine future development plans. The scale of these contracts alone represents more than half of the reserves currently referenced by CBI, illustrating how prolonged instability could discourage foreign investment, delay critical infrastructure projects, and ultimately weaken Iraq’s long-term production capacity.
Security risks facing Iraq and the Kurdistan Region are currently intensifying as the war involving Iran, the United States, and Israel continues to escalate. Although many of the immediate threats emerge from within Iraq itself - particularly from armed groups operating inside the country - they remain closely tied to the broader regional conflict. This environment of heightened insecurity has forced several international energy companies to suspend or scale back their operations, leading to reductions in oil and gas production as well as a sharp decline in export volumes.
At the same time, these developments are exposing deeper structural weaknesses within Iraq’s energy infrastructure, particularly in the areas of transportation and export logistics. The heavy dependence on a limited number of export routes and vulnerable transit corridors has revealed significant long-term risks for the country’s energy sector. In this context, ensuring the operational security of production facilities, pipelines, and export terminals is not only an economic necessity but also a critical requirement for safeguarding the livelihoods and fiscal stability of Iraq’s population, whose economy remains overwhelmingly dependent on oil revenues.
Oil production levels in Kurdistan Region’s oil fields
Most international oil companies (IOCs) operating in the Kurdistan Region’s oil and gas fields have announced the suspension of production due to heightened security risks. The first to do so was the British oil company Gulf Keystone Petroleum, which halted operations at the Sheikan field. This was followed by Dana Gas at Khor Mor, and Shamaran Petroleum at the Atrush and Sarsang fields. Although Norway’s DNO has not issued a formal announcement regarding the Tawke and Peshkabir (Peshkhabour) fields, available information indicates that production there has also been suspended.
Among the Kurdistan Region’s major producing assets is the Khurmala oil field, which during this period has experienced repeated production stoppages and resumptions due to the same security concerns. Prior to the outbreak of the war, the field produced approximately 80,000 barrels per day (bpd). In recent days, however, production has fluctuated significantly - dropping to around 45,000 bpd on some days and recovering to 65,000 bpd on others. Meanwhile, fields such as Sarqala, Erbil, Bejil, and Ain Sifni have not issued official statements regarding their operational status. Nevertheless, available information suggests that they continue to operate, albeit at reduced production levels.
According to compiled data, total oil production across the Kurdistan Region’s fields - including condensate output from the Khor Mor gas field - stood at roughly 300,000 bpd before the war. This figure has now fallen sharply to around 69,500 bpd, although output continues to fluctuate considerably from day to day due to the unstable security environment.
Sources: Company Q4 2025 reports; Iraq Oil Report; Middle East Economic Survey (MEES); Kpler.
Note 1: Output from the Khor Mor field refers to gas condensate, which has recently increased from 15,800 to approximately 21,000 bpd.
Note 2: Production at the Khurmala field fluctuates significantly daily. For this graph, output is presented as an estimated average of 50,000 bpd.
The security of the Strait of Hormuz may eventually be restored, allowing Iraq to recover its export volumes. However, the greatest long-term threat to the energy sector in Iraq and the Kurdistan Region lies elsewhere: the activities of armed groups. In the past, such groups primarily threatened energy infrastructure in the Kurdistan Region. Today, however, they are targeting Iraq’s most valuable asset - its southern oil infrastructure, including the Rumaila oil field. Rumaila, which holds an estimated 17 billion barrels of recoverable reserves and has historically produced around 1.4 million bpd, is operated by BP and PetroChina in partnership with the Basra Oil Company. Attacks on such facilities could inflict far more lasting damage than the temporary daily losses caused by disruptions in the Strait of Hormuz. While alternative export routes - whether through tankers, the rehabilitation of older pipelines, or the construction of new pipeline corridors - can be developed over time, restoring lost foreign investment worth billions of dollars would be far more difficult.
Ultimately, the war also exposes a deeper structural weakness: the absence of a coherent national energy strategy and the fragility of Iraq’s energy infrastructure. The current situation reflects a striking imbalance. In central and southern Iraq, vast oil reserves exist but lack sufficient transportation pipelines or alternative export routes beyond the Strait of Hormuz. In contrast, the Kurdistan Region possesses an export pipeline capable of transporting roughly one million bpd and access to the Mediterranean export terminal at Ceyhan, yet it currently lacks sufficient production flows to fully utilize this capacity. This contradiction highlights a fundamental gap in the strategic planning and industrial infrastructure of Iraq’s oil and gas sector - an industry upon which the country’s entire economy ultimately depends.