Key facts
- Iraq's cabinet approved a new crude discount mechanism to take effect September 1.
- The discount will be 30% off the lower of Somo's price or the federal budget's stipulated oil price.
- Three-month contracts were approved for specialized companies to handle crude exports.
- August loading cargoes of Basrah Medium and Basrah Heavy were offered at discounts of $25-29.80/bl.
- Iraq's oil revenue fell to ID28.5 trillion in H1 2026 from ID57 trillion in H1 2025.
- Iraq's fiscal deficit reached over ID21 trillion in H1 2026.
Iraq's cabinet has approved a new crude discount mechanism aimed at restoring exports and bolstering oil revenue, following significant reductions in sales due to traffic restrictions through the Strait of Hormuz. Effective September 1, crude purchases will be eligible for a 30% discount relative to the lower of the state-owned marketer Somo's price or the oil price stipulated in the federal budget.
The government also approved three-month contracts starting September 1, allowing specialized international and Iraqi companies to handle crude exports through multiple outlets. The exact roles of these companies and how this measure affects Somo's existing function remain unclear.
Somo has already been offering substantial discounts on Basrah Medium and Basrah Heavy cargoes for August loading, with prices ranging from $25 to $29.80 per barrel below their official selling prices. These discounts have widened considerably from July, reflecting increased logistical, insurance, and security costs associated with loading crude in Basrah and navigating the Strait of Hormuz.
Iraq's oil exports have been severely impacted by the disruptions, falling to an average of approximately 2 million barrels per day so far in August, a significant decrease from the pre-war average of 3.5 million barrels per day and July's 1.58 million barrels per day. Ship-to-ship transfers have been utilized to move Iraqi crude through Hormuz, and companies like Adnoc Trading have offered Basrah crude on a free-on-board ship-to-ship basis near Fujairah.
The export constraints have created a substantial fiscal gap, with Iraq's deficit exceeding 21 trillion Iraqi dinars in the first half of 2026. Oil revenue has effectively halved year-on-year, underscoring Baghdad's reliance on crude sales and its motivation to accept deep discounts to move barrels.