Iraq Devalues Dinar 15% to 1,500 Per Dollar as War Squeezes Oil Exports

Iraq cut the official value of its currency by roughly 15% on Wednesday, moving the peg from around 1,300 Iraqi dinars per dollar to 1,500, as the war between the United States and Iran squeezes the oil revenues that fund the state.

The Central Bank of Iraq said the Cabinet decided the new rate at a meeting Tuesday night, describing the move as necessary "to meet the relevant financial, economic and monetary requirements."

The previous official rate dated from 2023. In practice, a gap has always existed between the official rate and the market rate quoted by exchange shops. That gap widened sharply in recent months, driven by the U.S. war with Iran — which has at times spilled into Iraqi territory — and by disruptions to shipping through the Strait of Hormuz.

Why did Iraq act now?

Iraq's economy depends heavily on oil exports, and most of its crude shipped through the Strait of Hormuz before the war began. Since then, Iraq has rerouted oil overland through Syria for export. The alternative is costlier and less efficient, pressuring state finances that the dinar devaluation is designed to relieve.

The mechanics are straightforward. A weaker dinar means each dollar earned from oil sales converts into more dinars, helping the government cover domestic spending. The flip side: imports become more expensive, and consumers face potential price increases.

How did the market react?

Badly, and fast. The unofficial rate had already climbed above 1,600 dinars to the dollar before the announcement. After the Cabinet's decision became public, the market rate jumped past 1,700.

In Irbil, the capital of Iraq's northern Kurdish region, many exchange shops pulled down their shutters after the news broke.

The two-tier pricing is now formalized at different levels of the system:

• Iraq's Finance Ministry will sell dollars at 1,500 dinars per $1.
• Consumers buying dollars from banks will pay 1,520 dinars per $1.

Who loses money?

Traders and importers sit at the sharp end of the shift. Iraqi traders said they risked losses from the devaluation, while consumers said they feared price rises on everyday goods.

Ali al-Bahadili, a Baghdad businessman who sells clothes imported from China, said the rate change will cost him. His exposure is structural: his receivables are in dinars while his payables are in dollars.

"People owe us in Iraqi dinars, and we owe people in China in dollars," al-Bahadili said.

What comes next?

The immediate question is whether the market rate, now above 1,700, stabilizes near the new official band or keeps sliding — a wider gap would deepen pressure on importers like al-Bahadili and accelerate consumer price increases. Much depends on the trajectory of the war with Iran and whether Hormuz shipping disruptions ease enough for Iraq to restore its cheaper sea-borne export route.