ERBIL, Kurdistan Region - The United Nations’ International Labour Organization (ILO) warned that Iraq’s labor market is coming under mounting strain as the fallout from the Iran war continues, with workers bearing the brunt through delayed salaries and shrinking purchasing power, while broader job losses risk accelerating.
Nine weeks into the conflict, Iraq’s oil production has fallen by 81 percent following the closure of the Strait of Hormuz on February 28. In March, government revenues covered only 27 percent of the country’s monthly wage and pension bill, a shortfall affecting more than 10 million Iraqis reliant on public-sector income.
“The crisis reaches workers primarily through fiscal stress, inflation, and uncertainty,” Igor Bosc, the ILO’s acting Iraq country coordinator, told Rudaw. His office has published its third technical assessment of the war’s impact on the labor market.
The ILO estimates around 100,000 workers lost their jobs across Iraq in March, mainly in tourism, hospitality, oil services, and bakeries. However, Bosc cautioned that widespread layoffs are not yet the dominant trend. “The current phase,” the ILO’s note states, “is best characterised as a fiscal-and-cost squeeze,” with salary delays, suspended allowances, reduced hours, and rising prices eroding real incomes.
Kurdistan: corridor and pressure point
The Kurdistan Region occupies a dual role in the crisis. Its Ibrahim Khalil border crossing with Turkey has been temporarily authorized for food and medicine imports, while the Kirkuk-Ceyhan pipeline has resumed exports at around 250,000 barrels per day under a Baghdad-KRG agreement. This has boosted logistics and warehousing activity along the Duhok corridor. Bosc also pointed to the rapid restart of the Khor Mor gas field in Sulaimani province - after a March shutdown that caused widespread blackouts - as evidence of institutional resilience.
At the same time, the Region has recorded the highest concentration of direct security incidents during the conflict, with 22 fatalities and 101 injuries reported between February 28 and April 24, according to Community Peacemaker Teams.
Celebrations of the Nowruz and Eid al-Fitr holiday season, one of the Region’s most important periods for tourism revenue, were disrupted by the war.
“In Kurdistan, vegetable prices imported from Iran have apparently doubled, and fuel prices are up by more than 20 per cent in several cities. The Iraqi dinar has weakened on the black market from the official 1,300 to roughly 1,500 a dollar,” Bosc said.
The shock has compounded existing vulnerabilities. Around 1.25 million public employees and pensioners in the Kurdistan Region were already facing chronic salary delays before the conflict began.
Sectors under pressure
Construction is among the hardest-hit sectors, employing roughly 11 percent of the Region’s private workforce, mostly informal daily-wage laborers without social protection. With public investment frozen, work stoppages leave workers without income or safety nets. Wholesale and retail trade, tourism and hospitality, and small manufacturing - which depends heavily on imports and accounts for about 12 percent of private employment - are also under significant pressure.
Agriculture may benefit from import substitution as Iranian goods become more expensive, but rising fuel and fertilizer costs offset potential gains. While oil and gas sectors see limited direct layoffs due to their capital-intensive nature, local service providers are facing delayed payments and contracts.
“If the war resumes and prolongs beyond 12 to 18 months, we would expect [Small and medium-sized enterprises] SME closures to accelerate, a permanent expansion of informality, and youth migration to rise,” Bosc said.
Recovery depends on policy
Bosc said sectors like tourism and retail could rebound quickly if a stable ceasefire holds, drawing on patterns from past regional shocks. Construction would follow with the return of public investment, while SME recovery - within six to eighteen months - will depend on access to financing for businesses that have exhausted their working capital.
“Recovery is not the same as a return to pre-war conditions. Iraq cannot afford to remain 90 per cent dependent on oil revenue, and [Kurdistan Region of Iraq] KRI cannot afford to remain almost entirely dependent on the public sector,” Bosc said.
The ILO’s latest assessment recommends a phased policy response: immediate payroll protection and SME liquidity support, followed by stabilization through public employment and retraining programs, and longer-term reforms to expand social security coverage and reduce reliance on oil.
There are some signs of progress. Private-sector social security registration in the Kurdistan Region nearly tripled between 2021 and 2025, rising from around 101,000 to over 303,000 workers - one of the fastest expansions in the Middle East and North Africa. However, workers in construction, agriculture, and manufacturing - the sectors most affected by the current crisis - largely remain outside the system.