IMF predicts Iraq’s economy to be most affected by regional unrest
The IMF warns Iraq will face the most severe economic impact from regional unrest in 2026, with inflation and budget strains worsening due to disrupted trade routes and rising import costs. Trade losses and military conflicts outweigh potential oil price gains, forcing fiscal adjustments despite instability in the Strait of Hormuz and broader GCC trade disruptions.
The International Monetary Fund (IMF) has identified Iraq as the economy most vulnerable to regional turmoil in 2026, citing severe consequences for inflation and state budgets. Disrupted commercial movement, high transportation costs, and military confrontations—particularly affecting trade routes through the Strait of Hormuz—will strain Iraq’s financial stability, the report states. Iraq and Iran are the hardest-hit nations in the region, facing extreme fiscal and external balance pressures. Trade losses and reduced economic activity surpass any benefits from rising oil prices, leading to a negative fiscal adjustment for 2026, according to the IMF. Inflation forecasts for Iraq have surged compared to Gulf Cooperation Council (GCC) peers, driven by escalating import and commodity prices. While some GCC countries experience moderate increases, Iran faces even higher inflation rates, exacerbating regional economic disparities. The IMF highlights Iraq’s supply chain and foreign trade vulnerabilities as key risks, warning that economic pressure will persist unless regional trade improves. Without stability, financial and economic conditions are expected to deteriorate further in the coming months. The report underscores the need for breakthroughs in trade dynamics to mitigate Iraq’s economic challenges, emphasizing the urgency of addressing instability in the region.
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