The Asian nation, who drew with England in the group stages en route to the semi-finals, were on track for another major scalp when Ali Adnan fooled the Uruguayan keeper by sneaking a free kick in at the near post.
Lopez was again wasteful when opportunities came his way in the second period, as he lifted a chip over the crossbar, which was struck by his captain Gaston Silva on 77 minutes.
Uruguay failed to make sure of the result in extra time and therefore granted their less-fancied opponents a second chance in the lottery of a penalty shootout.
The two teams went on to score their next four penalties, forcing the contest into sudden death.
Mahdi Kamli thundered a penalty straight down the middle to again level the scores, only for Uruguay skipper Silva to put them ahead in the shootout once more.
Saif Salman turned out to be the Iraqi player who crumbled under the pressure, as he smashed his spot kick high into the stands, handing Uruguay a place in the final.