Five weeks into a war that has sent oil prices soaring and left global shipping in disarray, Tehran just blinked. At least for one country.
Iran announced on April 5 that it is exempting one of its closest neighbors from the Strait of Hormuz restrictions that have strangled global energy supplies since the U.S. and Israel launched their war on Iran on February 28, according to Al Jazeera. Iran’s Khatam al-Anbiya Central Headquarters said restrictions would only apply to “enemy countries.”
“Brotherly Iraq is exempt from any restrictions we have imposed on the Strait of Hormuz,” Iran’s military spokesman said in an Arabic-language video statement published by state-run Islamic Republic News Agency, as reported by Fortune.
What the exemption could mean for oil supply
The announcement has the potential to unleash as much as 3 million barrels a day of Iraqi oil cargoes back into global markets. That matters because Iraq’s oil sector has been devastated by the conflict. Iraqi oil exports plunged roughly 97% in March to a daily average of just 99,000 barrels, down from 3.4 million barrels before the war. Iraq’s Ministry of Oil said production itself had fallen to 1.2 million barrels a day, down from 4.3 million, according to Al Jazeera.
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Iraq is the world’s sixth-largest oil producer and the second-largest in OPEC, accounting for around 4% of global supply in 2023, according to the U.S. Energy Information Administration, as reported by Al Jazeera. Oil revenues make up around 90% of Iraq’s state budget, according to Fortune. Oil revenues make up around 90% of Iraq’s state budget, making the Hormuz closure an acute economic emergency for Baghdad.
Iran’s statement distinguished “brotherly” Iraq from hostile states, with the military spokesman speaking in Arabic rather than Persian and thanking the Iraqi people for their support since the war began. The two neighbors share close ties through their majority Shia Muslim populations and Iraq’s reliance on Iranian natural gas supplies.
The practical hurdles that remain for the global oil supply
The exemption does not guarantee an immediate recovery in Iraqi oil flows. An Iraqi official cautioned that the usefulness of the move will depend on whether shipping companies are willing to risk entering the strait to collect cargoes. It is also not immediately clear whether the exemption applies to all Iraqi oil or just vessels flying the Iraqi flag, or how Iran intends to enforce it.
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There is also the question of production. Even if tankers are willing to enter the strait, it remains unclear how quickly Iraq’s oil fields can ramp output back up after weeks of enforced cuts.
Key facts about the Iraq oil situation:
- Iraqi oil exports fell roughly 97% in March to 99,000 barrels per day, down from 3.4 million barrels before the war, according to Fortune
- Iraq’s Ministry of Oil said production fell to 1.2 million barrels per day, down from 4.3 million, according to Al Jazeera
- The exemption could potentially restore up to 3 million barrels per day of Iraqi oil to global markets, according to Fortune
- Shipping traffic through the strait remains more than 90% below pre-war levels, according to Al Jazeera
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A broader but still fragile thaw
Iran’s move on Iraq is the latest in a series of selective exemptions that Tehran has granted to countries it considers friendly. China, Russia, India, Pakistan, Malaysia, the Philippines, and Thailand have all secured some form of passage through the strait. But the overall situation remains dire. Traffic through the Strait of Hormuz is still down more than 90% from pre-war levels.
There were 53 transits through the strait last week, the most since the war began, up from 36 the previous week, according to Lloyd’s List Intelligence as reported by Al Jazeera. On April 4, a French container ship and a Japanese-owned tanker crossed the strait in what appeared to be the first transits by vessels linked to those countries since the conflict began.
Brent crude has remained above $109 a barrel in recent days, with analysts warning prices could surge much higher if the waterway is not fully unblocked soon. The strait normally carries around 20% of global oil and liquefied natural gas supplies.
The political backdrop and Trump’s threats
Iran’s announcement came as Trump renewed pressure on Tehran, warning in a social media post that “all hell” would rain down within 48 hours if Iran did not comply with his demands. Iran’s military headquarters rejected the threat, calling it a “helpless, nervous, unbalanced and stupid action.”
The Iraq exemption is a meaningful signal but falls well short of a full reopening. Markets and shipping companies will be watching closely to see whether Iraqi tankers actually begin moving crude through the strait in volume, and whether Iran enforces the exemption consistently as fighting continues.
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