Index trend
Previous Quarterly Editions
Expropriation risk: 75 ▲ Political violence risk: 57 ► Terrorism risk: 40 ▲ Exchange transfer and trade sanction risk: 64 ► Sovereign default risk: 65 ►
Overall Risk Temperature: 65 (Medium high 1) ►
Special topic:
At the end of 2024, Iraq held its first census since 1977. It excluded the autonomous region of Kurdistan. However, key criteria that define Iraq’s ethnoreligious diversity, including ethnicity, sect and language, were all removed from the questionnaire. Given the country’s polarization, there was concern that inclusion of this important demographic data would aggravate political divisions that have sustained the country’s long history of violent conflict.
There was particular concern that updated ethno-sectarian data in the country’s disputed territories, including oil-rich Kirkuk and Nineveh, could aggravate disputes between the federal government in Baghdad and the Kurdistan Regional Government. Kurdish leaders fear they are losing their stake in the ‘muhassasa’ system — the country’s usual practice of sectarian division of government positions.
However, the census went relatively smoothly — a testament to the political will of Prime Minister Mohammed Shia al-Sudan and the international community. Some interpret this as an attempt to piece together an Iraqi national identity, but with deadlines for major U.N. missions to close in 2025, as well as discussions about the end of the U.S.-led Global Coalition, the reduction in international engagement will likely further diminish electoral integrity, civil society development, women’s rights and the participation of ethnic and religious minorities in civic life. For example, new restrictions have been placed on sexual minorities, and in a recent report regarding the closing of the UN Assistance Mission for Iraq (UNAMI), which has assisted Iraq in promoting accountability, the Iraqi government criticized the participation of civil society.
Others may interpret this as a cautious next step for the federal government to consolidate its authority ahead of parliamentary elections planned for 2025. The dominant Shia Coordination Framework block has fragmented, particularly over the recent issue of whether the Iran-aligned Popular Mobilization Units should be better incorporated into Iraq’s Security Forces, in part through forcing the retirement of some of their leaders. There is also speculation that Shiite cleric Muqtada Al-Sadr will return to Iraqi politics after his decision to exit politics in 2022 when he failed to sideline his rivals in the Coordination Framework.
Three controversial bills that went together through parliament show the inescapability of sectarianism but also an effort to balance demands to avoid further polarization and potential violence. Iraq’s Personal Status Law entered into force in February 2025 and effectively established separate legal regimes with different rights according to religious sects, eroding legal equality for all Iraqis. Parliament passed this law together with the Property Restitution Law (returning land confiscated by the Saddam Hussein regime in disputed areas to Kurds and Turkmens) and an amendment sought by Sunnis to the General Amnesty Law, all in a single vote, in order to push through polarizing concessions for each of the country’s major ethnoreligious groups.
Expropriation Risk 75 (H igh) TREND ▲
Iraq continues to pay international oil company investors as regularly as possible despite facing significant payment challenges. Baghdad also strictly enforces the contracts of international pipeline projects.
In May 2024, Iraq's oil ministry signed 13 new contracts for oil field development and exploration, which is projected to increase production by 750,000 barrels of oil and 850 million cubic feet of gas per day. These developments enhance China's dominance in Iraq's oil and gas sector, with Chinese investments also supporting the upstream sector.
In February 2025, Iraq told OPEC it would present a plan to address past overproduction of oil. The country exceeded its quota by hundreds of thousands of barrels per day from January to August 2024. Although OPEC plans to increase output in April, Iraq has committed to making compensation cuts to meet its target.
After the Trump administration blocked Iraq's electricity imports from Tehran in March 2025, Baghdad began talks with Qatar and Oman for alternatives, anticipating similar actions against its gas trade with Iran. A deal has also been made with an Emirati company for a new floating liquefied natural gas terminal at Khor al-Zubair port, which will supply at least 500 million cubic feet of gas per day to Iraq.
Political Violence Risk 57 ( Significant) TREND ►
Following the October 2023 outbreak of hostilities in Gaza, Iranian-aligned Iraqi groups attacked U.S. bases in Iraq and Syria and targeted Israel. Israel successfully intercepted most drones and cruise missiles from Iraq. In March 2024, a drone strike killed three U.S. soldiers. In September 2024, a drone from Iraq struck the Israeli port of Eilat. In June and July 2024, Houthi and Iraqi militia representatives claimed to have conducted joint attacks against Israel. In November, joint operations ceased after Grand Ayatollah Ali al-Sistani's announcement and ongoing Israeli threats. This cooperation was unprecedented and could be revived if tensions rise between Iran and Israel.
The relative calm seen since early December, without strikes, is possibly due to fear of attracting Washington’s attention, with the approach taken by the new Trump administration an unknown quantity. In January 2025, Prime Minister Sudani lifted an arrest warrant for U.S. President Donald Trump related to the killing of militants during his first term. He also agreed to help free American-Israeli researcher Elizabeth Tsurkov, who is held by the Iran-backed militia Kataib Hezbollah. These actions indicate that Iraq is attempting to reduce political violence in 2025.
In February 2025, jailed militant leader Abdullah Ocalan called on his outlawed Kurdistan Workers Party (PKK) to lay down its arms and dissolve, and the militant group declared an immediate ceasefire. Many see this as a positive step to end the 40-year conflict within Turkey, but it should also have positive repercussions in Iraq where Turkish forces have long conducted military operations to try to root out PKK fighters who have sought sanctuary in the Qandil mountains. Iraq had long grown uncomfortable with this conflict, as PKK leadership and influence spread from the mountains to areas outside of the Kurdistan Region, including disputed territories in Nineveh. Any long-term calm has yet to come, as the Turkish ministry killed 26 Kurdish militants in Iraq and Syria a few weeks after the historic announcement. Nonetheless, the conflict has influenced Ankara’s relations with Baghdad, leading to closer security ties, and Iraq’s Ministry of Foreign Affairs praised the announcement as a crucial step toward enhancing overall security and addressing a major problem between Baghdad and Erbil.
Terrorism Risk 40 (Medium low) TREND ▲
Total deaths from terrorism continue to fall, and the risk of a significant Islamic State (IS) resurgence remains low. According to the Institute of Economics and Peace, total deaths have fallen by 99% since their peak in 2007.
A massive regrouping of IS in Iraq is unlikely, but there is still concern that the group will capitalize on recent political developments. Remnants of IS and other terrorist elements continue to pose a threat. The fall of President Bashar al-Assad in Syria in December 2024 has been felt in Iraq, and there is concern that a perceived Islamist government in Damascus may pose a risk to Iraq. In March 2025, Syrian nationals in Iraq were attacked by Shia armed groups over their alleged support for the new interim Syrian President Ahmad al-Sharaa and the violence and revenge killings in coastal Syria that led to the death of more than 1,000 people, predominantly Alawites.
Another looming security threat is the prisons in northeast Syria that hold IS detainees. The halting of U.S. foreign assistance has impacted their management. In March, the Iraqi government repatriated over 600 Iraqi nationals from the prisons to try to address lingering extremist threats and stabilize the region. Upon returning to Iraq, there has been concern over the torture and arrests of men and boys by authorities. The fact that Iraqis with perceived IS affiliation still experience difficulties in their integration reflect that the underlying causes underpinning terrorism remain unaddressed.
Iraq remains on high alert in 2025. Iranian-backed groups in Iraq have softened their earlier calls for U.S. troops to exit the country, scheduled for this year, partially given concerns that IS will exploit the situation. U.S. withdrawal could allow IS to reconstitute and threaten Iraq. This may also explain why the U.S. military increased its troop presence from 900 to 2,000 in north-eastern Syria at the end of 2024. The U.S. also intensified its airstrikes against IS after Assad’s overthrow. Iraq and Turkey, as well as Jordan and Syria, agreed in March 2025 to form a joint operation and intelligence mechanism to contain IS in the region. Turkey appears to be trying to become the new security guarantor and serve as a check against terrorism should there be a U.S. withdrawal.
Beyond terrorism, another major issue coming to the fore is the potential havoc Captagon production and trafficking will have in Iraq. Since the fall of Assad, the trade has shifted, with Iraq expected to become one of the new primary narcotic centers. The trade and production in Iraq are being facilitated by a blurry mixture of Popular Mobilization Units and aligned political factions, criminal networks and tribal networks. A crackdown on Captagon production by post-Assad Syria means it will likely grow even faster now in Iraq. On top of the threat of an IS resurgence, criminal networks are emerging in the country fueled by narcotics production and trafficking.
Exchange Transfer and Trade Sanctions Risk 64 ( Significant) TREND ►
In March 2025, the U.S. government ended its sanctions waiver for Iraq to purchase Iranian electricity. This ends the U.S. efforts since 2018 to enable Iraq to meet its short-term energy needs. It is part of the Trump administration’s ‘maximum pressure’ campaign on Iran. Iraq has no immediate measures in place to compensate for the loss of energy imported from Iran, which will cause a major challenge in meeting domestic electricity consumption. Although this could prove positive in the long term by accelerating Iraqi energy independence or at least diversification, there are more immediate conditions for social unrest, with domestic politicization of power shortages the greatest risk. Iraq could see electricity shortages double this summer.
Turkey has continued its cessation of oil exports from the Kurdistan region, after a French arbitration court 2023 decision found that Ankara had breached legal agreements with Baghdad. Media investigations have found a growing black market of oil smuggling from the Kurdistan region into Iran, which could create tensions with Washington. However, in February, the Trump administration threatened Baghdad, demanding that it allow Kurdish oil exports or face sanctions. Washington is eager for global energy prices to fall while also seeking to disrupt the financial relationship Iraq has with Iran. The U.S. embassy in Baghdad has joined in the talks to resume oil flows to Turkey. Iraq's oil ministry announced on February 26 that an agreement was reached to resume oil exports to Turkey, but exports have not started.
Sovereign Default Risk 65 (Medium high) TREND ►
Fitch Ratings continues to grade Iraq’s long-term foreign-currency issuer default rating at B–. This reflects Iraq’s continued high dependence on commodities and its weak governance structure.
Iraq continues to display a huge reliance on oil, which makes it extremely vulnerable to fluctuations in global crude prices. Moreover, Iraq exports approximately 35% of its oil to China, and has seen increased Chinese investment, so it is exposed to China’s slower growth and, indirectly, to the Trump administration’s policies against China.
The International Monetary Fund (IMF) expects Iraq’s fiscal deficit to increase to 8.2% GDP in 2025 from 7.6% GDP in 2024, but projects 4.1% GDP growth in 2025. Government expenditures accounted for 48.43% of GDP in 2024, but this is expected to fall to 47.94% in 2025. Nonetheless, corruption and hurdles to private sector development remain barriers to economic growth.
