17APR

Iran Exempts Iraq From Hormuz as Oil Output Collapses

3 min read

09:52UTC

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

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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

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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

Human rights monitors (Hengaw, Amnesty International, Iran HRM)

Monitors documented a second death sentence for Zahra Tabari, 68, reported cemetery record deletions at Behesht-e Zahra, and a poll showing 81.5% of medical residents want to emigrate, against a background of 200+ confirmed executions since February. Iran's security courts operate at uninterrupted wartime tempo regardless of the diplomatic track.

Pakistan (mediator)

Islamabad carried Trump's revised MOU demanding HEU destruction to Iranian negotiators, formally inheriting the role of sole active mediator after Oman's forced withdrawal. Pakistan lacks Oman's banking infrastructure for frozen-asset routing and carries its own regional stakes, making it a less structurally neutral broker.

Kuwait

Kuwait intercepted Iranian missiles and drones for a second time in days on 1 June, with air-raid sirens sounding nationwide, after invoking Article 51 self-defence on 28 May following the Ali Al Salem ballistic-missile strike. The repeated interceptions test whether Kuwait's domestic politics can sustain hosting US forces as a de facto co-belligerent.

China (PRC)

Beijing sent scholars to Shangri-La rather than its defence minister and addressed Taiwan without mentioning Iran, maintaining bilateral energy corridor protection with Tehran while refusing diplomatic exposure at multilateral forums. Trump barred China as an HEU custodian on 27 May, removing Beijing from the deal architecture while China continues supplying DPI hardware that caps Iran's internet.

Lloyd's of London / war-risk underwriters

Lloyd's held its Hormuz war-risk designation at $10-14 million per voyage while Brent recovered to $93.91, maintaining the structural divergence from futures pricing that has persisted since late May. Underwriters require a UN Security Council resolution or government certification letter, not diplomatic optimism.

Gulf Cooperation Council states (Saudi Arabia, UAE, Bahrain, Qatar)

Five Gulf states wrote to the IMO on 21 May rejecting Iran's PGSA transit authority over international waters; Saudi Arabia and the UAE have not confirmed participation in the European Hormuz mission. The GCC is navigating between US security guarantees and exposure to Iranian fire, with no Gulf state formally co-belligerent except Kuwait.