Iraq is now turning to diplomacy with Iran to reopen a critical oil artery, the Strait of Hormuz, after a near-total blockade has choked its primary export route and crippled its economy.
The situation is centered on the Strait of Hormuz, a narrow waterway responsible for transporting about a fifth of the world's oil. Since early March, this chokepoint has been virtually shut down. Following Iranian attacks and threats against commercial vessels, major maritime insurers withdrew war-risk coverage. This action prompted shipping companies to halt all transits, causing oil prices to surge above $100 per barrel and triggering the largest-ever coordinated release of strategic petroleum reserves by the International Energy Agency (IEA).
For Iraq, the consequences have been immediate and severe. The country's main export terminal at Basra, which typically ships over 3.3 million barrels per day (mb/d), has been at a standstill. This shutdown translates to a staggering loss of nearly $5 billion in gross revenue in just over two weeks. While a smaller, alternative pipeline through Turkey may soon open, its capacity is a drop in the ocean compared to the volume lost from Basra. This immense financial pressure explains Baghdad's urgency in seeking a diplomatic solution.
The crisis unfolded through a clear sequence of events. First, Iran's military actions, including laying mines and attacking tankers, created a high-risk environment. Second, this led directly to the withdrawal of insurance, which is essential for maritime commerce. Without insurance, shipping operators had no choice but to suspend voyages. Third, with no tankers arriving at its ports, Iraq's oil storage facilities quickly filled up, forcing it to shut down production. This chain reaction created a logistical and financial nightmare, compelling Iraq to negotiate directly with the source of the disruption: Iran.
Iraq's outreach to Tehran for "selective passage" is a pragmatic move to alleviate this pressure. It's an attempt to carve out a small, de-escalatory channel that allows some Iraqi oil to flow without waiting for a full, military-enforced reopening of the strait. By negotiating for specific tankers—perhaps distinguished by flag or destination—Iraq hopes to restore a fraction of its lost revenue and ease the strain on its storage infrastructure. This diplomatic track runs parallel to slower-moving plans for U.S.-led naval escorts. The success of this initiative will quickly become clear by monitoring ship tracking data and insurance market updates.
- War-risk coverage: A type of insurance that covers damages to ships and cargo due to acts of war, such as attacks, mines, and seizure.
- International Energy Agency (IEA): An intergovernmental organization that provides policy recommendations, analysis, and data on the global energy sector, and coordinates emergency oil stock releases for its member countries.
- Strait of Hormuz: A strategically important strait between the Persian Gulf and the Gulf of Oman, serving as the main shipping route for oil from the Middle East.