Rating affirmation
S&P Global Ratings affirmed Iraq’s long‑term sovereign credit rating at B‑ and its short‑term rating at B, removing the country from the CreditWatch negative list where it had been placed on 17 March 2026. The long‑term rating carries a negative outlook.
Oil production shock and 2026 forecast
The war in the Middle East caused a sharp contraction in Iraq’s hydrocarbon‑dependent economy. Crude output dropped from 4.19 million barrels per day (bpd) in February to 1.68 million bpd in March—a 60 % fall—and further to 1.39 million bpd in April. S&P projects that full‑year 2026 oil production will be roughly 28 % lower than in 2025.
GDP and fiscal outlook
S&P forecasts real GDP to contract by more than 15 % in 2026 before rebounding by about 13 % in 2027. The general‑government budget deficit is expected to widen to 7.5 % of GDP in 2026, up from the 4.5 % projection made in March 2026. General‑government debt net of liquid assets is projected to rise to 54 % of GDP by 2029, compared with 35 % in 2025.
Debt composition and external exposure
Iraq’s total government debt is roughly split 55 % domestic and 45 % external, with the external portion largely concessional from multilateral and bilateral creditors.
International reserves
The Central Bank of Iraq’s international reserves remain sizable, just under $100 billion—about 36 % of GDP—and are sufficient to cover total gross external debt by a factor of 1.7. As of May 2026, reserves had declined to $91.9 billion, of which approximately 25‑30 % is held in gold and 45 % in U.S. Treasury securities.
Outlook and rating risk
The negative outlook reflects multiple risks over the next six to twelve months, including persistent disruptions to key export trade routes via the Strait of Hormuz and the risk of physical damage to infrastructure. S&P notes that a significant escalation of the conflict, more sustained export‑route disruptions, or a reduced willingness by Iraq to service its debt could lead to a downgrade of the sovereign ratings.