BAGHDAD — Iraq has devalued its currency as disruptions to oil exports caused by the ongoing Middle East conflict put additional pressure on government revenues and the country’s finances.
The Iraqi Cabinet approved a new exchange-rate structure on Tuesday, with the revised rate taking effect on Wednesday, October 7, 2026. The official rate was changed to 1,520 Iraqi dinars per US dollar from about 1,320 previously, representing a devaluation of roughly 14.5 per cent.
The decision comes as disruptions to shipping through the Strait of Hormuz have affected Iraq’s ability to export crude oil, a critical source of government revenue.
Oil Exports Under Pressure
Iraq depends heavily on oil sales to finance its government. Recent disruptions to maritime shipments have reduced the country’s crude exports significantly.
According to Reuters, Iraqi oil exports fell to about 2.34 million barrels per day in August, compared with more than 3.6 million barrels per day before the war. The disruption has forced Baghdad to explore alternative transportation routes for its crude exports.
The Strait of Hormuz is particularly important to Iraq because much of its crude normally leaves the country through the waterway.
The disruption has also contributed to higher international oil prices, with crude prices rising above $100 per barrel amid concerns about regional supply.
Government Seeks More Dinars
Under the new exchange-rate structure, Iraq’s Finance Ministry will purchase dollars at 1,500 dinars per dollar, while banks and other financial institutions will sell dollars to end users at 1,510 dinars. The public-facing rate was reported at 1,520 dinars per dollar.
The weaker dinar allows the government to receive more local currency for each dollar earned from oil exports.
Iraqi analyst Mohammed al-Saffar described the move as a fiscal response to the shock affecting the country’s oil revenues.
The measure, however, carries significant economic consequences for households and businesses because Iraq imports many goods and services that are priced in dollars.
Imports Could Become More Expensive
The devaluation means Iraqi consumers and businesses will need more dinars to purchase the same amount of foreign currency.
That could increase the cost of imported food, medicine, vehicles, machinery and other goods, potentially adding to inflationary pressure.
The impact was already visible in foreign-exchange markets. The unofficial exchange rate had risen above 1,600 dinars per dollar before the government announced the new official rate, while reports said the market rate subsequently moved above 1,700 dinars.
The change has also created uncertainty for businesses that have obligations denominated in dollars but receive payments in dinars.
Budget Faces Pressure
Iraq’s 2026 draft budget assumes oil prices of about $58 per barrel and projects government spending of approximately 217 trillion dinars, equivalent to around $166 billion.
The budget also forecasts a deficit of more than 40 trillion dinars and assumes crude exports of roughly four million barrels per day, including shipments from the Kurdistan region.
With oil exports disrupted, the government faces the challenge of maintaining spending commitments while receiving fewer foreign-currency revenues.
The devaluation therefore provides the government with additional dinar revenue when oil dollars are converted, but it does not resolve the underlying reduction in oil-export volumes.
Alternative Routes
Iraq has been seeking alternative routes to move its crude as disruptions around the Strait of Hormuz continue.
One emerging option involves transporting Iraqi crude overland through Syria for export. However, such routes are more expensive and less efficient than conventional maritime shipments.
The currency adjustment is Iraq’s latest response to the economic effects of the regional conflict and disruptions to its oil-dependent revenue system.
For households and businesses, however, the immediate concern is whether the weaker dinar will translate into higher prices and further pressure on purchasing power.
