Summary: A temporary ceasefire in the Iran war has not reversed the conflict’s destabilizing effects in neighboring Iraq. It has exposed the country’s structural vulnerability to external conflict and pressure—caught between the United States and Iran, with economic coercion, disrupted oil exports, and militia activity amplifying internal fragility.
More than 50 days into the U.S.-Israeli war on Iran, a fragile pause in fighting has offered a moment of relief across the region.
But for Iraq, the ceasefire has not brought stability. The country remains exposed to a conflict it did not choose and cannot fully insulate itself from. Continued disruption of the Strait of Hormuz and tightening U.S. financial pressure are already imposing significant economic costs, constraining oil exports, and deepening fiscal uncertainty.
As we noted at the outset of this war, Iraq’s position is unenviable. The longer the conflict continues, the greater the risk that Iraq is pulled deeper into a confrontation between its two most powerful partners—the United States and Iran—with profound consequences for its security, economy, environment, and sovereignty.
That risk has not diminished. It has become clearer.
A Pause in Fighting, Not a Resolution
While a temporary ceasefire in effect since April 8 has reduced immediate violence, the underlying dynamics of the conflict remain unresolved and highly volatile.
The halting of attacks by Iran-backed Iraqi militias—after they had launched several hundred drones and rockets at the Kurdistan Region, U.S. interests, and Iraq’s neighbors—resulted not from a decision by Baghdad, but from negotiations between Tehran and Washington.
Moreover, recent reporting and field developments underscore that Iraq remains on the front lines even in periods of de-escalation. Iran has fired on tankers carrying Iraqi crude oil and has continued to launch drone and rocket strikes, including against the Kurdistan Region, despite the formal pause in hostilities.
At the same time, the U.S. and Gulf states have increased pressure on Baghdad. Washington has demanded that Iraqi authorities rein in Iran-backed militias and has suspended key forms of security cooperation, including training and joint operations. Several Gulf states, including Saudi Arabia, have sent strongly worded warnings to Baghdad over attacks originating from Iraqi territory, undermining years of efforts to rebuild bridges between Iraq and its Arab neighbors.
This convergence of internal fragmentation and external pressure highlights a core structural reality: the Iraqi state does not exercise full control over decisions of war and peace within its own territory.
Escalation Without Control and the Strait of Hormuz
These incidents reflect a fragmented security environment in which armed actors operate with varying degrees of autonomy—creating persistent risks of miscalculation, retaliation, and spillover.
At the same time, Iraqi leaders face a narrow and increasingly difficult balancing act: responding to U.S. and neighbors’ demands to constrain militias without triggering internal instability or backlash from powerful political factions tied to those same groups.
If the security situation is precarious, the economic outlook is even more concerning.
The continued disruption of the Strait of Hormuz—combined with parallel pressure from both Iran and the United States—has exposed the fragility of Iraq’s oil-dependent economy.
According to Iraq’s Oil Ministry, crude exports in March fell by more than 80 percent compared to February, generating a sharp drop in state revenues. Despite the ceasefire, exports have yet to recover amid ongoing security risks as the U.S. and Iran continue to enforce shipping blockades at the Strait of Hormuz.
At the same time, the United States has escalated financial pressure by restricting the flow of dollars into Iraq’s cash-based economy—effectively leveraging Iraq’s own oil revenues to compel political alignment.
The impact is magnified by the structure of Iraq’s fiscal model:
• Oil exports underpin the vast majority (90%) of government revenue
• State salaries support a significant portion of the population
• Access to U.S. dollars is critical for trade, imports, and financial stability
All of this is compounding the impact on people across Iraq and the Kurdistan Region: external shocks are rapidly transmitted into domestic economic stress, with direct implications for livelihoods, governance, and social stability.
Political Fragility
These pressures are unfolding at a time of internal political uncertainty.
Iraq has elected a new president but remains deadlocked over the selection of a prime minister, with competing factions divided over candidates and external influence.
The formation of a government is further complicated by:
- Vocal U.S. opposition to certain candidates seen as either aligned with Iran or incapable of protecting U.S. interest from attack
- Iranian interference leveraging influence within key political blocs in the Coordination Framework and beyond
- Intense competition among Iraq’s own political coalitions
Amid ongoing internal fragmentation and external pressure, Iraq’s political system struggles to act as a unified, sovereign decision-maker in moments of crisis.
Environmental and Human Costs
Beyond geopolitics and economics, war produces or exacerbates lasting environmental and humanitarian problems.
Attacks on infrastructure and energy facilities undermine the provision of essential basic services, such as electricity and cooking gas, while releasing toxic fumes into the air and oil leaks into waterways and farmlands. Recent reports also point to severe pollution waves in the Tigris and Diyala rivers, forcing the shutdown of downstream drinking water treatment facilities and causing mass fish die-offs. These challenges—driven by climate change, resource mismanagement, and weak infrastructure—require sustained government attention and investment that are unlikely in the near term, as war and economic uncertainty take center stage.
As Iraq’s experience with war has shown, environmental damage does not end when fighting stops. It persists in degraded ecosystems, strained public services, and long-term health consequences. During the Iran–Iraq War, the use of chemical weapons left enduring harm to both people and land, while a decade later, the burning of more than 600 Kuwaiti oil wells in 1991 created one of the largest environmental disasters in modern history, blanketing the region in toxic smoke for months.
The demands of war also divert attention and resources away from addressing climate change and broader environmental challenges, undermining efforts to build more peaceful, prosperous, and sustainable futures.
A Structural Problem, Not a Temporary Crisis
Taken together, these developments reflect a structural condition rather than a temporary crisis. Iraq’s political fragmentation, contested security landscape, and overdependence on oil leave the country persistently exposed to external shocks and internal instability—even in periods of relative calm.
The coming weeks and months will likely be defined by uncertainty. Key questions remain: will the ceasefire hold or unravel under pressure from regional fronts? Can diplomatic channels gain traction amid shifting dynamics in Iran? How will continued disruption to energy export routes affect Iraq’s economy? And critically, can Iraq navigate this moment without being pulled deeper into conflict?
There are no easy answers. What is clear is that for Iraq, the short-term de-escalation does not resolve the long-term risk.
This war underscores a central reality for Iraq: the country’s stability remains deeply intertwined with forces beyond its control. Understanding these dynamics is essential to any effort to insulate Iraq from future shocks and building a more stable, sovereign, and peaceful future.
For readers seeking to follow these developments more closely, EPIC publishes the Iraq Security and Humanitarian Monitor (ISHM), a weekly briefing drawing on Iraqi Arabic and Kurdish sources, alongside a series of special Iraq Briefings on YouTube examining the war’s impact inside the country. We have also published a detailed backgrounder, “Who Has Sovereignty? How Iraq’s Political Order Exposes the Country to War [pdf]” that analyzes how Iraq’s political system shapes its exposure to regional conflict.