10AUG

Iran Exempts Iraq From Hormuz as Oil Output Collapses

3 min read

23:27UTC

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

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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

Yemen's internationally recognised government and affected communities

SABA reported at least 17 soldiers killed at Saudi-backed camps in eastern Yemen as tanker use of Bab el-Mandeb fell. The fighting adds civilian and supply risks to a route ships use when Hormuz is unsafe.

Shipping and insurance market

Lloyd's List Intelligence counted 84 Hormuz transits in the week to 7 August, against more than 700 in normal conditions. Vessel operators and underwriters need verified passage rules and a lower attack risk before regular sailings return.

United States Treasury

The US Treasury designated five Iranian individuals and ten entities, including crypto exchanges and wallet addresses, on 7 August. Washington is applying financial pressure while Iran asks for sanctions relief before reopening Hormuz.

United Arab Emirates

The UAE said an Iranian missile targeted an ADNOC-owned vessel on 8 August. Abu Dhabi's claim puts its state energy fleet inside the dispute, though the incident's details remain unresolved.

Oman

Oman and Iran agreed discussions on monitoring, environmental protection, maritime services and crime, while excluding transit fees. Muscat's role is operational mediation, but it cannot settle demands directed at Washington.

Iran's Supreme National Security Council

Iran's Security Council published six conditions for reopening Hormuz, including sanctions relief and frozen assets. Tehran treats maritime access as part of a wider settlement rather than a shipping-only arrangement.