Iraq is one of the few countries where the main limit on oil production is not the size of the resource. The country holds around 145 billion barrels of proved crude oil reserves, placing it among the five largest reserve holders worldwide. Many of its fields are large, onshore and relatively inexpensive to develop compared with deepwater or unconventional resources.
The greater difficulty is moving oil from the reservoir to a reliable export market. Iraq depends heavily on southern fields and marine terminals near Basra. Northern exports have been disrupted by disputes between the federal government, the Kurdistan Regional Government and Türkiye. Water shortages, pipeline bottlenecks, aging offshore infrastructure and limited storage further restrict the system.
These constraints matter far beyond the oil industry. Petroleum exports provide most of Iraq’s government revenue and foreign currency. A disruption at an export terminal, pipeline or international shipping route can therefore affect public finances, investment and the wider economy within weeks.
Southern Iraq Carries the National Oil Economy
Most Iraqi crude comes from fields in and around Basra. This southern producing region includes Rumaila, West Qurna, Zubair, Majnoon and several smaller developments. Together, these fields form the center of Iraq’s production and export system.
Iraq averaged around 4.4 million barrels per day of crude oil production in 2024. Federal Iraq supplied approximately 4.1 million barrels per day, while fields under the Kurdistan Regional Government produced close to 300,000 barrels per day. Total petroleum liquids production was about 4.5 million barrels per day.
Production has been managed within the OPEC+ framework. Iraq has at times produced above its agreed target and has committed to compensation cuts. This creates a distinction between physical production capacity and the amount that Iraq is permitted or commercially able to place on the market.
The government aims to increase crude oil production capacity to 7 million barrels per day by 2029. Planned expansion includes work at Majnoon, Zubair, West Qurna and other southern fields. Iraq has also sought new investment through licensing rounds and agreements with international oil companies.
The size of the fields makes this target appear possible from a geological perspective. The practical requirements are much more demanding. New production must be supported by water injection, gathering systems, processing plants, storage, pipelines and additional export capacity. Without these supporting assets, higher field capacity cannot be converted into sustained sales.
Water Injection Is Becoming as Important as New Drilling
Many of Iraq’s largest oil fields are mature enough to require large volumes of injected water to maintain reservoir pressure. As production rises, the need for treated injection water rises with it.
Fresh water is not a suitable long-term answer in a country already facing severe water stress. Iraq therefore plans to process seawater from the Gulf and transport it to southern fields. The Common Seawater Supply Project has been discussed for years as a central part of future oil expansion.
TotalEnergies is involved in a seawater conversion project designed to support mature southern fields. The planned system could eventually process several million barrels of water per day, with an initial phase targeted for later in the decade.
The importance of the project is difficult to separate from Iraq’s production ambitions. Drilling additional wells can raise short-term output, but reservoir pressure will continue to decline without sufficient injection. Delays to the water system could therefore delay several upstream projects at once.
Water infrastructure also illustrates how Iraq’s oil constraints have changed. The country is no longer focused only on restoring fields damaged by war and sanctions. It must now manage mature reservoirs, environmental limits and complex megaprojects similar to those faced by other established producers.
Basra Is Iraq’s Export Gateway and Its Main Vulnerability
During 2024, Iraq exported more than 3.2 million barrels per day of seaborne crude. All of these cargoes left through southern terminals in the Persian Gulf, carrying Basra Medium and Basra Heavy grades to international refiners.
Asia is the main market. China, India and South Korea together receive much of Iraq’s crude, with China and India alone accounting for roughly 62% of exports in 2024. European refiners also purchase Iraqi oil, particularly through ports serving the Netherlands, Greece and Italy.
The concentration of exports in Basra makes the southern terminal system essential to national finances. Operational export capacity was estimated at around 3.4 million barrels per day in mid-2024. This was close enough to normal export volumes that maintenance problems, bad weather or pipeline failures could quickly reduce shipments.
Several subsea pipelines and loading facilities require replacement or rehabilitation. Sealine 3 is intended to connect additional offshore loading capacity, while proposed Sealines 4 and 5 would replace aging infrastructure and increase overall throughput. Progress has been slower than planned.
Iraq’s dependence on the Strait of Hormuz became especially visible during the 2026 regional conflict. With normal tanker traffic disrupted, southern production fell sharply because terminals could not load enough crude and storage began to fill. At one stage, output from major southern fields was reduced by several million barrels per day.
Iraqi officials indicated that production and exports could recover quickly once safe passage through Hormuz returned because much of the lost output was shut in rather than permanently damaged. The episode nevertheless showed that large reserves and productive fields cannot protect Iraq from a blocked shipping route.
Northern Oil Remains Tied to the Baghdad–Erbil Relationship
Northern Iraq has a separate set of problems. Oil from Kirkuk and the Kurdistan Region can reach the Turkish Mediterranean port of Ceyhan through the Iraq–Türkiye pipeline system. This route gives Iraq an alternative to the Persian Gulf and can serve European markets without passing through Hormuz.
Exports stopped in March 2023 following an international arbitration decision. The ruling concerned Türkiye’s acceptance of crude sold independently by the Kurdistan Regional Government without authorization from Baghdad.
The shutdown reduced production in the Kurdistan Region and cut revenue for both the regional government and international operators. Some crude was redirected to local refineries or transported by truck, but these outlets could not replace pipeline exports at normal prices or volumes.
Federal Iraq, the KRG and producing companies then spent more than two years negotiating payment terms, production costs and control over sales. Pipeline flows resumed in September 2025 after an interim agreement allowed crude to move through the federal marketing system.
The route again became strategically important during the 2026 disruption in Hormuz. Kirkuk exports through Ceyhan resumed at limited rates, creating a partial alternative to the southern terminals. However, volumes remained far below the pipeline’s theoretical capacity.
A further issue is the agreement governing the Iraq–Türkiye pipeline, which is due to expire in July 2026. Baghdad and Ankara have been discussing replacement terms, including questions over pipeline use, tariffs and the unresolved legacy of arbitration. The northern route has returned, but its long-term commercial framework remains unsettled.
Refineries Are Expanding, but the Product Mix Remains Uneven
Iraq has approximately 1.3 million barrels per day of operating refining capacity. It has added substantial capacity since 2023 through the Karbala refinery, expansion at Basra, repairs at Baiji and smaller projects elsewhere.
These investments are intended to reduce imports of gasoline and diesel. Iraq produces large volumes of crude, but its refineries have historically generated more heavy fuel oil than the domestic market requires while failing to produce enough lighter transport fuels.
The result is an unusual trade pattern. Iraq exports millions of barrels of crude each day but still imports certain refined petroleum products. At the same time, it has increased exports of high-sulfur fuel oil as refinery runs have grown.
Further projects include the proposed Fao refinery and upgrades to existing plants. Their value will depend not only on total capacity but also on configuration. More basic distillation capacity will not fully solve shortages if refineries cannot convert heavy material into gasoline, diesel and other higher-value products.
Iraq also burns crude oil and fuel oil in power stations. This provides electricity when natural gas supplies are inadequate, but it uses material that could otherwise be exported or processed into more valuable products.
Oil Growth Requires Infrastructure, Agreement and Revenue Stability
Iraq’s oil sector has the reserves and producing fields needed to remain one of OPEC’s largest suppliers. Its challenge is connecting those assets to a reliable national system.
The 7 million-barrel-per-day capacity target depends on seawater injection, southern export pipelines, functioning offshore terminals and stable contracts with international operators. It also depends on a lasting federal agreement over northern production and revenue.
The 2026 Hormuz disruption added another priority: route diversification. A stronger northern corridor through Türkiye could reduce dependence on Basra, but only if Baghdad, Erbil, Ankara and producing companies can maintain a workable legal and commercial agreement.
Iraq’s future production will therefore be decided as much by infrastructure and state coordination as by drilling. The country has enough oil underground. Its long-term test is whether it can build an export system capable of carrying that oil to market without placing the entire economy at the mercy of one route.
