Iraq has approved a new crude discount mechanism in an attempt to restore exports and bolster oil revenue after traffic restrictions through the strait of Hormuz sharply reduced crude sales.
The cabinet on 18 August approved crude purchases from 1 September at a 30pc discount to the lower of state-owned marketer Somo's price or the oil price stipulated in the federal budget. The financial impact of the mechanism will be reviewed, according to a statement from prime minister Ali al-Zaidi's office.
The statement did not identify which buyers or purchases would qualify for the mechanism, or how it would interact with the steep discounts Somo is already offering buyers loading Iraqi crude from southern terminals.
The cabinet also approved three-month contracts, starting on 1 September, allowing specialised international and Iraqi companies to handle crude exports through multiple outlets. The statement did not explain what those companies will do beyond handling exports, which outlets will be used, or whether the measure affects Somo's role in Iraqi crude sales.
Somo this month offered term customers Basrah Medium and Basrah Heavy cargoes loading in August at discounts of $25-29.80/bl to their respective official selling prices (OSPs), reflecting the additional logistical, insurance and security costs buyers face when loading crude at Basrah and moving it through the strait of Hormuz.
Basrah Medium loading on 1-10 August was offered at a $27/bl discount to its OSP, falling to $26/bl for 11-20 August and $25/bl for the rest of the month. Basrah Heavy discounts ranged from $29.80/bl for early-August loading to $27.80/bl later in the month.
Those discounts widened from the $14-18.80/bl Somo offered for July-loading cargoes, underlining the pressure on the Iraqi government to move more crude and restore its main source of revenue.
Iraq exports most of its crude from southern terminals inside the Mideast Gulf, leaving it particularly exposed to disruption around the strait of Hormuz. Loadings averaged around 3.5mn b/d before the US-Iran war but fell sharply after traffic through the strait was restricted.
Exports have since partly recovered, according to oil minister Basim Mohammed Khudair, who said on 14 August that Iraq had exported around 2mn b/d so far this month, up from 49mn bl, or 1.58mn b/d, in July. But volumes remain well below pre-war levels.
At least four tankers carrying Iraqi crude this month have used ship-to-ship (STS) transfers to move cargo through Hormuz to waters near Fujairah, according to Vortexa data. Abu Dhabi's Adnoc Trading has also offered August-loading Basrah crude on a fob STS basis near Fujairah, as well as delivered cargoes to buyers in Asia-Pacific, Europe and the Mediterranean.
The arrangement allows refiners to buy Iraqi crude without sending their own vessels through Hormuz, shifting some of the logistical, insurance and security burden to traders able to move crude out of the Mideast Gulf.
The cabinet has given the oil minister authority to establish new transport routes under existing contracts and renew those agreements. State-owned Oil Pipelines has been instructed to expand loading platforms.
The government has also approved mechanisms covering advance payments for Iraqi crude sales and where buyers' payments and deposits will be held.
Fiscal squeeze
The export disruption has already opened a large gap in Iraq's public finances.
Federal spending reached 57.18 trillion Iraqi dinars ($43.6bn) in the first half of 2026, against revenues of ID35.9 trillion, according to finance ministry data, leaving a deficit of more than ID21 trillion.
Oil revenue fell to ID28.5 trillion from ID57 trillion in the first half of 2025, effectively halving year on year as constrained exports deprived Baghdad of its principal source of income.
Non-oil revenue increased to ID7.4 trillion from ID4.9 trillion, lifting its share of government receipts to around 20pc. But the increase fell well short of offsetting the loss of oil income.
The squeeze is compounded by the rigidity of Iraqi spending. Operational expenditure accounted for ID54.67 trillion of first-half spending, while investment expenditure was just ID2.5 trillion.
Salaries, pensions, social welfare, subsidies and bonuses amounted to ID48.76 trillion, equivalent to 85pc of total expenditure.
The figures leave Baghdad with limited room to absorb an extended disruption to crude exports and help explain the government's willingness to accept substantial discounts to move more barrels.
