Iraq Grapples with Deep-Seated Economic Challenges Post-2025 Parliamentary Elections

Post-Election Landscape Defined by Economic Headwinds

Following the conclusion of its parliamentary elections on November 11, 2025, Iraq finds itself at a critical juncture, with a new government tasked with navigating a landscape dominated by persistent economic challenges. The elections, which saw a voter turnout of 56.11%, have set the stage for complex coalition-building efforts, expected to take several months. The incoming administration will immediately confront issues of oil dependence, high unemployment, and systemic corruption, all of which demand urgent and comprehensive reform.

Over-Reliance on Oil Fuels Fiscal Vulnerability

Iraq's economy remains overwhelmingly dependent on its vast oil reserves, a factor that continues to expose the nation to global market fluctuations. In 2024, oil revenues constituted over 91% of the federal income, a figure that rose to more than 93% of total government income in 2025. This heavy reliance means that fluctuations in crude oil prices directly impact the national budget. The International Monetary Fund (IMF) reported in July 2025 that the oil price required to balance Iraq's budget increased to approximately $84 per barrel in 2024, a significant rise from $54 in 2020. With oil prices hovering around $67 per barrel in 2025, current revenues are insufficient to cover planned public expenditures, leading to projected fiscal deficits. The IMF also projected in April 2025 that Iraq's economy was on course to shrink by 1.5% in 2025, primarily due to falling oil prices and waning global demand.

Unemployment Crisis and Public Sector Burden

High unemployment, particularly among the youth, represents another formidable challenge for Iraq. The overall unemployment rate stood at 15.5% in 2024, with projections indicating it will reach 15.00% by the end of 2025. Youth unemployment, affecting those aged 15 to 24, was notably higher at 32.1% in 2024. Efforts by previous governments to mitigate social discontent have often involved expanding the public sector, leading to a bloated bureaucracy. Public sector salaries and pensions accounted for nearly 50% of total expenditures in 2024, consuming a substantial portion of the budget and limiting funds available for investment in critical infrastructure and economic diversification.

Pervasive Corruption Undermines Development

Corruption remains deeply entrenched across all levels of government in Iraq, hindering economic development and eroding public trust. In 2024, Iraq scored 26 out of 100 on Transparency International's Corruption Perceptions Index, ranking 140th out of 180 countries. This pervasive issue is estimated to have resulted in the theft and smuggling of approximately $150 billion in oil money since 2003. Furthermore, tax evasion and customs-related problems contribute to an estimated annual loss of $10 billion, further straining the nation's finances. The presence of corruption acts as a significant impediment to doing business and undermines crucial governance reforms.

Complex Coalition-Building and the Path to Reform

The 2025 parliamentary elections have ushered in a period of complex coalition-building, a process historically prone to lengthy stalemates in Iraq. The resulting political vacuum can stall urgently needed reforms and create instability. Caretaker governments, which often operate during such periods, are legally restricted from passing new laws or approving long-term investment deals, exacerbating economic strain. The new government faces the daunting task of forming a cohesive coalition capable of addressing these multifaceted challenges through economic diversification, private-sector development, improved governance, and strengthened public service delivery.