Iraq’s official price for dollars had remained at roughly 1,300 dinars since 2023, even as exchange shops were charging more than 1,600 dinars to the dollar before the devaluation was announced.
The cabinet approved a new exchange-rate structure on Tuesday, following emergency recommendations from the Finance Ministry and the Central Bank. The official rate became 1,520 dinars per US dollar on Wednesday, roughly 14.5% below the previous official rate.
Businesses and citizens in Baghdad will obtain foreign currency through the national banking system at the new retail rate. The Finance Ministry will sell dollars at 1,500 dinars to the dollar, while consumers buying dollars from banks will pay 1,520 dinars.
The change follows a disruption to the flow of oil dollars into a state that receives over 90% of its revenue from oil. Most of Iraq’s oil exports had travelled through the Strait of Hormuz before the war, but shipping disruptions linked to US-Iran tensions blocked that primary route.
Since the war began, Iraq has sent oil overland through Syria for export. That route costs more and is less efficient.
The difference between the official rate and the rate used by exchange shops had widened in recent months as the war and shipping disruption intensified the pressure on the dinar. The street rate can diverge from the official pegged rate by 10% or more.
Four members of parliament’s finance committee told Reuters on Tuesday that the government was considering an adjustment. The cabinet then acted as the dinar slid despite fresh cash injections.
After the new official rate was announced, the market rate rose to more than 1,700 dinars to the dollar.
Economists said the devaluation responded to disrupted oil sales, Iraq’s largest source of revenue, caused by the US-Israeli war on Iran. Mohammed al-Saffar, an Iraqi analyst, described the decision as a fiscal response to the shock to oil revenue from the Iran war and interrupted exports. He said it gives the government more dinars for every dollar of oil revenue, while increasing import costs and reducing households’ purchasing power.
Iraq’s external debt is estimated at $120 billion in International Monetary Fund figures.
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