Iraq Devalues the Dinar as the Iran War Guts Oil Revenue

Iraq's cabinet has devalued the dinar, setting a rate of 1,520 dinars per US dollar, roughly 14.5 percent below the previous official rate. The decision was adopted Tuesday and took effect Wednesday.

The Finance Ministry's purchase rate is set at 1,500 dinars per dollar, with sales by banks and non bank financial institutions to end beneficiaries at 1,510. Economists called the devaluation a fiscal response to the shock to Iraq's oil revenues from the US Israeli war on Iran, now in its eighth month, which has disrupted Gulf crude exports and pushed international oil prices above 100 dollars a barrel.

The dinar devaluation gives the government more dinars for each dollar of oil revenue, but raises import costs and reduces households' purchasing power, Iraqi analyst Mohammed al Saffar said. That tradeoff is the heart of the decision. Iraq's draft budget assumes an oil price of 58 dollars a barrel, projects spending of 217 trillion dinars, equivalent to about 166 billion dollars, and forecasts a deficit of more than 40 trillion dinars, according to four members of parliament's finance committee.

The numbers behind the pressure are stark. Iraqi exports fell to around 2.34 million barrels per day in August, from more than 3.6 million barrels per day before the war. Oil sales account for the bulk of the state's revenue. The draft budget envisages crude exports of around 4 million barrels per day, including shipments from the Kurdistan region, a target that looks ambitious while the war continues to choke Gulf export routes.

Iraq has been seeking alternative transport routes after the disruption, and Prime Minister Ali al Zaidi directed an executive funding package totaling 3.5 trillion Iraqi dinars, about 2.7 billion dollars, earlier this week to increase market liquidity. Meanwhile the dollar has climbed above 1,600 dinars on Iraq's parallel market, about 21 percent above the previous official retail rate, a sign of the pressure ordinary Iraqis were already feeling.

The devaluation lands within days of the 2027 budget, due in parliament by October 15. It is the clearest sign yet that the fiscal fallout of the regional war is reaching ordinary citizens' wallets.