Oil Prices Drop as Iraq Resumes Exports via Turkey Amid Hormuz Strait Closure

Iraq faces potential credit downgrade as oil output drops due to Strait of Hormuz closure. Iraq resumes limited exports via Turkey, easing supply concerns and causing oil prices to fall. Markets react positively amid hopes for stable interest rates.

Iraq at Risk of Downgrade as Hormuz Shutdown Impacts Oil Output

Last night, Iraq faced the risk of a credit rating downgrade by S&P due to a significant decline in its oil production this month.

S&P placed Iraq on CreditWatch with negative implications, signaling a potential downgrade.

Iraq’s oil output has decreased to approximately 1.2 million barrels per day (bpd), down from 4.2 million bpd, following the effective closure of the Strait of Hormuz since the regional conflict began on February 28, 2026.

A sustained disruption to Iraq’s oil production is expected to exert pressure on the country’s fiscal and external balances throughout 2026, despite its substantial international reserves, which currently cover about 10 months of current account receipts.

Consequently, S&P has placed its ‘B-’ long-term foreign and local currency sovereign ratings for Iraq on CreditWatch with negative implications.

The Iraqi state news agency reported that Kirkuk has restarted pumping oil through Turkey’s Ceyhan port at a rate of 250,000 barrels per day.

This volume represents only a fraction of Iraq’s usual output. Prior to the onset of the Iranian conflict, Iraq was producing 4.5 million barrels of crude oil daily. However, output was sharply reduced once tanker transit through the Strait of Hormuz became unsafe.

Introduction: Oil Falls After Iraq Signs Deal to Resume Exports via Turkey

Good morning, and welcome to our continuous coverage of business, financial markets, and the global economy.

The ongoing conflict in the Middle East continues to influence markets, as maritime traffic through the Strait of Hormuz remains disrupted by the crisis.

However, oil prices have declined this morning following reports that Iraq reached an agreement with Turkey to resume oil exports through Turkish territory, having coordinated with the Kurdistan region to transport oil via a pipeline there.

According to , crude exports from Iraq’s Kirkuk oil fields via pipeline to Turkey’s Ceyhan port have recommenced, providing an alternative route that circumvents the Strait of Hormuz.

Nevertheless, Bloomberg notes that rerouting some Iraqi oil through Turkey will only partially alleviate supply concerns, as Iraq’s oil production has fallen to roughly 1.4 million barrels per day — about one-third of pre-Hormuz closure levels.

Brent crude prices are down 1.55% this morning, trading at $101.80 per barrel, while US crude has declined nearly 3% to $93.42 per barrel.

Ipek Ozkardeskaya, senior analyst, stated:
"This morning, oil is sharply down on news that Iraq signed a deal to resume oil exports via Turkey, bypassing the Strait of Hormuz, while Saudi Arabia is also rerouting exports toward the Red Sea. The region is reorganizing, preparing for the possibility of a prolonged conflict.
Restoring oil exports fully will take time, and we may soon see physical-market shortages — likely keeping oil prices under upward pressure. Yet, as flows adapt to alternative routes, the initial surge in oil prices seen at the start of the war could ease."

Stock markets are also reacting positively: Japan’s Nikkei has gained 2.8% this morning, and South Korea’s KOSPI has risen by 5.7%.

Investors are hopeful that central banks will overlook the imminent inflation spike instead of responding by raising interest rates. Tonight, the Federal Reserve Chair Jerome Powell is expected to announce that US interest rates will remain unchanged.

Jim Reid of Deutsche Bank commented:
"There is also a bit more calm in markets at the moment and a small hint that there is a decoupling from the price of oil as the last 24 hours have seen more positive risk markets and lower [bond] yields."