After months of relatively stable salary transfers from the Iraqi Finance Ministry to the Kurdistan Regional Government (KRG), delays have resurfaced this month. Some Iraqi institutions have also not received their salaries, raising concerns about cash availability amid falling oil prices.

Context: According to Narmin Marouf, a member of the Iraqi Parliament’s Finance Committee, the current delays are linked to the dinarization policy—converting revenues from oil sales into Iraqi dinars. Moin Kahimi, the head of the Iraqi Parliament’s Finance Committee, stated that there is a growing issue with cash availability. He explained that due to regulatory measures restricting the sale of U.S. dollars to merchants, importers, and tourists—along with restrictions imposed last year by the U.S. Federal Reserve—the government is now receiving fewer dinars in exchange for its dollar revenues than what is needed to meet its rising expenditures. While this has led to sporadic cash shortages in recent months, Marouf noted that the current issue is not directly tied to the recent decline in oil prices. Iraq operates on forward contracts, meaning revenues are based on previously agreed prices, and these have not yet been affected by the current market downturn.

To bridge the liquidity gap, the government has resorted to borrowing. It has issued treasury transfers, bonds, and other financial instruments to obtain immediate cash, which is then used to meet expenditure obligations until new revenues are realized.

Analysis: The situation presents an early warning sign for Iraq’s financial stability. The fact that liquidity shortages are emerging even before the full impact of falling oil prices is felt suggests that deeper structural issues are at play. Iraq’s fiscal health is not only undermined by its overreliance on oil, which still accounts for over 90% of state revenue, but also by unsustainable spending patterns rooted in political patronage. Public employment has expanded massively in recent years—not as a result of economic planning, but due to the fragmentation of the state among competing Shiite political blocs. Ministries often serve as fiefdoms, distributing jobs as rewards for political loyalty, further bloating the public payroll.

This fragility means that any significant drop in oil prices—particularly below the $50 per barrel threshold, which is becoming increasingly plausible given current market trends—could push Iraq into a full-blown financial crisis. Even with prices temporarily stabilizing around $60, the government’s ability to sustain salary payments and public services remains uncertain. The risk is heightened by the fact that Iraq’s 2025 federal budget is based on an oil price of $70 per barrel. If the downward trend in oil prices continues, the gap between projected and actual revenues could result in a severe fiscal shortfall. Meanwhile, government spending continues to rise, and Iraq’s mechanisms for generating non-oil revenue remain limited and underdeveloped.

The stakes are not merely financial. With over 38% of Iraq’s workforce employed in the public sector, the failure to pay salaries on time risks triggering widespread protests. This is especially likely during the summer months, when soaring temperatures and chronic electricity shortages traditionally fuel public anger. In such a context, a financial crisis driven by oil volatility could ignite a broader wave of unrest.

Moreover, the legitimacy of Iraq’s current political order is already eroding. Influential figures such as Muqtada al-Sadr are poised to exploit any crisis to weaken or topple the ruling Shiite coalition, particularly its pro-Iranian factions. At the same time, shifting regional dynamics—especially the collapse of the Assad regime in Syria and the weakening of Iran’s regional position—are emboldening both Sunni actors and Kurdish groups in the north. A financial breakdown could accelerate centrifugal forces already in motion, pushing Iraq toward a new phase of instability.

In this environment, a cash crisis in Iraq is not a routine fiscal challenge. It could prove to be a breaking point, setting off a chain reaction that the current political establishment may be unable to contain.