3MAR

Iran Exempts Iraq From Hormuz as Oil Output Collapses

3 min read

11:57UTC

Iraq lost three-quarters of its oil production to the blockade. Tehran granted relief and called it brotherhood.

← Back to Natanz unverified; Hormuz sealed Jump to analysis ↓

ConflictAssessed

Key takeaway

Iran is converting Hormuz from a blockade into a bilateral licensing system it controls.

Iran exempted Iraq from all Strait of Hormuz restrictions on 5 April, citing "brotherly" ties. ¹ Iraq's oil production had collapsed from 4.3 to 1.2 million barrels per day under the blockade, a 72% drop costing roughly $200 million daily. Oil is the single revenue source that funds Iraq's government. The exemption is a survival measure for both sides: Iraq's economy cannot function without Hormuz access, and Iran needs at least one friendly neighbour whose state has not been destroyed by Iranian policy.

Weekly Hormuz transits rose to 53 last week, up from 36, but still down over 90% from the pre-war normal of roughly 966. The increase is driven entirely by bilateral exemptions: the Philippines, France , Japan, Oman, and now Iraq. Each deal further normalises Tehran's sovereignty claim over international waters. The coalition posture Washington maintained since the blockade began is dissolving into a series of licensing arrangements administered by Tehran.

Ali Vaez of the International Crisis Group assessed that Hormuz control is "much more potent than even a nuclear weapon." Former CIA Director Bill Burns said Tehran has "tasted its power and leverage and won't soon give it up." US intelligence simultaneously assessed Iran will not open Hormuz "any time soon." ²

Deep Analysis

In plain English

Iran is blocking most ships from passing through a narrow waterway that most of the world's oil passes through. Iraq, which is Iran's neighbour and has historically friendly relations with Tehran, was losing three-quarters of its oil income because of the blockade. Iran has now said Iraq's ships can pass through. This sounds like a concession, but it is actually something more significant: Iran is deciding country by country who gets to use an international waterway, and charging them for the privilege. That is a fundamental change in who controls global oil shipping.

Source Landscape

This story draws on mixed-leaning sources from Qatar and Israel

Qatar

Israel

LeftRight

Primary parallel: The Allied blockade of Germany in World War I — initially comprehensive, progressively eroded by neutral exemptions for Scandinavian states, ultimately maintained as an instrument of pressure through selective enforcement. The Hormuz bilateral exemption system follows the same structural trajectory: a nominally total blockade converting into a managed licensing regime administered by the blocking power.

Counter-parallel: US oil sanctions on Iran from 2018 — also built around bilateral exemptions for India, China, South Korea, and others. Those exemptions steadily eroded the sanctions architecture until they were eliminated. Iran appears to have learned from watching its own sanctions erosion and is now applying the exemption model offensively.

Iraq's 72% oil production collapse from 4.3 to 1.2 million barrels per day costs Baghdad approximately $200 million daily. Oil is Iraq's sole material revenue source, funding 90% of government expenditure. Without Hormuz access, Iraq faces a fiscal crisis within weeks.

The exemption does not restore Iraq's full production: ships must still transit the Larak Island IRGC corridor, paying in Iranian rial. Each Iraqi barrel that transits contributes to the 53 weekly transits counted last week, still down 90% from pre-war baseline. The economic relief is partial; the political signal to Arab states watching the bilateral exemption system is total.

Consensus view: International Crisis Group's Ali Vaez and former CIA Director Bill Burns both assess that Iran will not relinquish Hormuz control voluntarily, having assessed the strait as more strategically valuable than its nuclear programme. Each bilateral exemption reinforces this assessment by demonstrating that Tehran can manage the blockade selectively without global coalition forming against it.

Counter-view: Carnegie Endowment's Karim Sadjadpour argues the Iraq exemption exposes a structural flaw in Iran's Hormuz strategy: a blockade that Iran must selectively abandon to prevent the economic collapse of its closest ally is not a sustainable strategic instrument.

Key tension: Whether Iran's bilateral exemption system is a sign of Hormuz leverage being strategically managed or of the blockade becoming unworkable under its own weight.

First Reported In

Update #59 · Day 37: A Ground War Inside Iran That Nobody Will Name

Al Jazeera· 5 Apr 2026

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Causes and effects

This Event

Iran Exempts Iraq From Hormuz as Oil Output Collapses

Each bilateral Hormuz exemption normalises Iran's sovereignty claim over international waters and fragments the collective Western posture against the blockade.

Led to

Iran's Hormuz Toll Matures Into Permanent Institution

Iraq's Hormuz exemption (ID:1981) is part of the bilateral deal pattern driving the toll system's normalisation.

Occurred 6 Apr 2026

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IDF Strikes Iraq-Iran Border Crossing at Shalamcheh

Iraq's Hormuz exemption from Iran (ID:1981) contrasts with the IDF striking Iraq-Iran border infrastructure.

Occurred 5 Apr 2026

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Different Perspectives

Oil markets / Lloyd's underwriters

Futures markets priced CENTCOM's strikes-complete statement as a de-escalation signal and pushed Brent down 1.7 per cent to $94.71, even as the IRGC declared Hormuz closed. Lloyd's war-risk premiums held elevated because institutional de-listing requires a UN Security Council resolution that Russia and China have just shown they will block.

Pakistan (mediator)

Interior minister Mohsin Naqvi carried dual civilian and military letters to Mojtaba Khamenei in Tehran on 6-7 June with no public response. The IRGC's Hormuz closure on 11 June shows the corps is acting independently of the channel Pakistan is using, making the mediation structurally unable to produce a binding commitment without direct IRGC access.

Russia and China

Russia and China voted against GOV/2026/40 at the IAEA Board, following through on the blocking position coordinated with Grossi in Geneva on 5 June; both states continue to oppose Western institutional pressure on Iran at every multilateral venue.

E3 and IAEA (UK, France, Germany)

The E3 co-sponsored IAEA resolution GOV/2026/40, adopted 21-3-10 on 10 June, demanding Iran disclose 440.9 kg of unaccounted HEU and admit inspectors to four denied facilities. The 10 abstentions and Russia-China noes leave any Security Council referral without a viable enforcement path.

IRGC / Iran military command

The corps declared Hormuz closed to all traffic on 11 June and claimed two vessels struck, overriding the MoU its own civilian negotiators were pursuing through Pakistan. The closure order used the Persian Gulf Strait Authority apparatus to convert a toll mechanism into a military prohibition.

Trump administration / CENTCOM

CENTCOM completed a second day of strikes on Tehran, Sirik and Minab, rejected the IRGC Hormuz closure as inconsistent with observed transit, and said strikes were complete. Hegseth framed the bombing explicitly as the negotiation: the method is coercive deal-making with no stated pause threshold.