Recent tensions around the Strait of Hormuz –  a channel for an estimated 20% of the world’s oil and liquified natural gas supplies that the Iranian government shut down after U.S.-Israeli airstrikes – has put a strain on Iraq’s already fragile economy, threatening recent progress towards poverty reduction in Iraq. Fortunately, there may be a solution to prevent future threats to Iraq’s economic prosperity.

Recent Progress Towards Poverty Reduction in Iraq

In 2003, the United Nations established its Assistance Mission for Iraq (UNAMI) to assist in rebuilding the country following the fall of Saddam Hussein’s regime. Since then, the people of Iraq have seen their fair share of struggle; they faced years of war, political corruption and economic struggle. However, in more recent years, the government of Iraq has made strong efforts to understand and reduce poverty for its people; in 2025, the Iraqi government officially announced the launch of its Multidimensional Poverty Index analytical report, and in the last three years, Iraq’s poverty rate has dropped from 23% to 17.5%.

On top of that, in 2024, Iraq reached a score of 0.712 on the Human Development Index (HDI), which measures life expectancy, education and quality of living for its citizens. By achieving this number, they surpassed the average HDI for Arab nations, a significant sign of progress for the country. After the UN declared its mission successful in 2025, the UNAMI mandate came to an end. Despite recent progress, many of Iraq’s citizens, including children, still face deprivation across education, health care and living standards.

Now, with the closure of the Strait of Hormuz and the halt of oil production, the challenge Iraq now faces is “the most serious operational threat” it has faced in more than 20 years, according to a senior Iraqi oil ministry official.

The Effects of the Strait’s Closure 

Since the war began in late February, the Iranian government has controlled, restricted and blocked access to the Strait of Hormuz. “Tehran is leveraging the global economy’s inability to tolerate a sustained closure of the waterway,” said Landon Derentz of the Atlantic Council.

The problem for Iraq, a strategic trading partner of the United States, is that it relies on crude oil for nearly 90% of its total income, which they export via the Strait of Hormuz. Following the closure of the checkpoint, Iraq was forced to shut down oil production from its southern fields, halting nearly all of its oil exports.

Now, nearly two months since Iran closed the strait, after much negotiating, several U.S. threats, ultimatums and even a naval blockade, despite a couple of false alarms, the strait remains closed. The difficulty in reopening the waterway proves to be a problem within itself, but even when ship traffic does continue, Iraq’s economy will remain vulnerable to future threats made on the Strait of Hormuz.

‘Build Around it,’ He Says 

While reopening the waterway by force may offer a quick fix to the problem, it has proved to be a difficult and costly task. Derentz, who served as director of energy at the White House during the Trump administration’s first term, suggests that building infrastructures around the channel to bypass it would offer a more long-term solution, ending Iran’s ability to leverage the Strait of Hormuz entirely. 

“Saudi Arabia’s East-West pipeline…has already proven that bypass infrastructure can relieve part of the bottleneck created by the closure of the Strait of Hormuz. That model should now be scaled dramatically,” says Derentz. If the government were to ever consider it, this suggestion could very well prove to be effective: the maneuver would permanently weaken Iranian leverage against the global economy, foster economic resilience for Iraq and only cost a fraction of the $200 billion the United States was willing to spend on military operations against Iran.

Final Thoughts 

Lately, Iraq has shown significant progress toward poverty reduction. However, if the country ever wishes to climb out of destitution completely, sustainable economic growth remains crucial. The United States government has recently stated that it is “dedicated to our enduring strategic partnership with the Government of Iraq and the Iraqi people,” with several U.S. companies currently active in Iraq. U.S. resolution to the Strait of Hormuz will not only be a service to its enduring trading partner, but to the entire global economy as well. The Strait of Hormuz conflict may be a speed bump for poverty reduction in Iraq, but it is surely not the end of the road.

– Tommy Bass

Tommy is based in Philadelphia, PA, USA and focuses on Good News and Global Health for The Borgen Project.

Photo: Pixabay