Iraq Country Risk Rating

Iraq remains one of the highest-risk markets in the group, with an overall rating of very high. Political violence, legal & regulatory risk, supply-chain disruption, political interference and the risk of doing business are all rated very high. The state continues to operate through a fragmented political system in which militia-linked groups, patronage networks and competing federal and regional authorities exercise considerable influence. Islamic State remnants remain a security threat, while the U.S.-Iran conflict has increased the danger of missile, drone and militia activity on Iraqi territory. Relations between Baghdad and the Kurdistan Regional Government also remain vulnerable to disputes over oil production, customs and revenue sharing. Corruption, weak contract enforcement, opaque procurement and the influence of armed groups create an exceptionally difficult operating environment. Iraq’s dependence on hydrocarbons has made the current regional conflict particularly damaging. The country normally exports most southern crude through the Strait of Hormuz, leaving public finances exposed when shipping is interrupted. Baghdad is therefore seeking to diversify export routes via Turkey’s Ceyhan terminal and possible pipelines toward Syria and Jordan, while also targeting a substantial expansion in production over the next six years. The government has discussed raising capacity toward 8-10 mln barrels per day and is courting U.S. investment in major oil and power projects. Implementation will depend on security, infrastructure and OPEC constraints. Sovereign non-payment risk is rated high and the government’s inability to provide stimulus is medium-high. Oil provides close to 90% of state revenue and the public wage and pension bill is exceptionally large, meaning lower export receipts rapidly translate into fiscal pressure. Exchange transfer risk is medium-high. Iraq holds more than USD100 bln in foreign exchange reserves, but much of its oil revenue passes through U.S.-linked financial channels, while Washington has tightened pressure on Iraqi banks and trade flows used to facilitate payments to Iran. Banking-sector vulnerability is rated medium-low because financial intermediation remains shallow, but operational weaknesses, sanctions exposure and heavy state dependence remain considerable. Iraq’s large resource base provides substantial long-term opportunity, but conflict, governance weaknesses and extreme dependence on oil keep country risk firmly at very high.