IMF expects sharp 16% contraction for Iraq in 2026, then strong 19% rebound in 2027

The International Monetary Fund expects Iraq’s economy to undergo a sharp contraction of 16% in 2026 before returning to strong growth estimated at about 19% in 2027, according to the World Economic Outlook report published on 13 October 2026, framing this path in the context of continued disruption to navigation through the Strait of Hormuz.

According to the report, Iraq’s real GDP recorded a slight decline of 0.4% in 2025, then enters a deeper contraction during 2026 before witnessing a strong rebound in 2027, reflecting the sensitivity of the oil-dependent economy to any prolonged interruption in energy exports.

On inflation, the IMF projected that Iraq’s inflation rate would rise from 0.3% in 2025 to 3.5% in 2026, then ease to about 3% in 2027.

As for the current account, the Fund expects the deficit to widen from 3.8% of GDP in 2025 to 10.8% in 2026, before turning into a surplus of 2.2% in 2027 if export conditions improve according to the report’s assumptions.

The analysis links these forecasts to the assumption that the disruption of the Strait of Hormuz continues longer than previously expected, with a gradual reopening of the waterway beginning in March 2027 and a nearer return to prior conditions by October of that year.

Across the Gulf, the 2026 forecasts were exceptionally severe for several oil economies: Kuwait a contraction of 16.7%, Qatar 15.6%, Bahrain 11.3%, the UAE 3.9%, and Saudi Arabia 3.3%, while Oman remained the only Gulf economy expected to grow by 4.1%.

This outlook places Iraq among the most affected by the halt of navigation through the Gulf, because the majority of its oil exports travel via routes linked to the sea passage. Any additional delay in resuming navigation will prolong pressure on public revenues, the exchange rate and public finances.

The IMF’s baseline scenario assumes a gradual easing in the Strait of Hormuz during 2027 will give oil-exporting countries a strong rebound in economic activity, which explains the expected jump in growth for Iraq and other Gulf states, while the Fund stresses that uncertainty remains high throughout the period.

The projected growth figures for 2027 do not automatically mean an immediate improvement in household living standards, as outcomes will depend on job creation, containing inflation, fiscal stability and the management of oil revenues when flows resume.

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