The closure of the Strait of Hormuz severely impacts Iraq's oil production, S&P places its rating on downgrade watch.

1. S&P Global on Tuesday placed Iraq's long-term sovereign credit rating of "B-" on negative credit watch, citing a sharp decline in the country's oil production due to escalating Middle East conflicts, posing a downgrade risk. Since February 28, as regional tensions intensified, the Strait of Hormuz has been effectively closed, causing Iraq's oil production to plummet from 4.2 million barrels per day to about 1.2 million barrels per day.2. Iraq has the fifth largest proven crude oil reserves in the world and is the third largest exporter in OPEC+. Oil accounts for about 60% of Iraq's GDP, 90% of national revenue, and 95% of commodity export income. S&P warned that even though Iraq has considerable foreign exchange reserves, if oil production is interrupted for a long period, its fiscal and external positions will be under pressure before 2026.3. S&P stated that the Iraqi government is highly sensitive to oil prices and revenues, and a drop in oil prices could reduce government income and further cut spending. It is expected that the Iraqi government will use reserves to repay foreign debt. As of mid-February, Iraq's international reserves were about $97 billion, equivalent to approximately 10 months of current account expenditures.