S&P Affirms Iraq’s Sovereign Rating, Removes Negative Watch

Global credit ratings agency S&P Global Ratings has affirmed Iraq’s sovereign credit rating at B-/B while removing the country’s long-term rating from CreditWatch with negative implications, offering a measure of reassurance to investors despite mounting geopolitical and economic challenges.

The agency maintained a negative outlook, citing elevated risks stemming from ongoing tensions in the Middle East over the next six to twelve months, including potential disruptions to export trade routes through the Strait of Hormuz and possible damage to critical infrastructure.

S&P warned that Iraq’s economy remains heavily dependent on the oil sector, leaving the country particularly vulnerable to any sustained interruption in crude exports through the strategically important waterway.

In its latest assessment, the ratings agency projected Iraq’s average oil production to decline to approximately 2.9 million barrels per day in 2026, representing a drop of nearly 28% from the pre-conflict average of 4 million barrels per day recorded in 2025.

The forecast reflects current production levels and what S&P described as a fragile recovery expected to materialize during the second half of the year.

The agency noted that oil revenues account for more than 90% of Iraq’s government income and merchandise exports, making public finances and external accounts particularly sensitive to fluctuations in production and export volumes.

As a result, S&P expects Iraq’s fiscal position and balance of payments to remain under significant pressure throughout 2026, while forecasting a 15% contraction in real GDP during the year.

Despite the challenging outlook, the agency indicated that stronger average oil prices could offer partial support to Iraq’s fiscal and external balances, provided that oil exports gradually recover during the second half of 2026.

S&P said this scenario remains its baseline expectation, although it cautioned that regional security developments continue to pose significant downside risks.

The latest decision marks a notable shift from March, when the agency placed Iraq’s long-term sovereign rating on CreditWatch with negative implications amid concerns over a sharp decline in oil production linked to escalating regional conflict.

While the removal of the negative watch signals greater confidence that immediate rating pressures have eased, the negative outlook underscores persistent concerns about Iraq’s exposure to geopolitical instability and its continued dependence on hydrocarbon revenues.