The Central Bank of Iraq said Wednesday that the new exchange-rate structure took effect on Oct. 7.

The bank will buy dollars from the Finance Ministry at 1,500 dinars per dollar. It will sell dollars to banks at 1,510 dinars and to the public at 1,520 dinars.

The previous public rate was about 1,320 dinars per dollar. The change therefore represents a significant official weakening of the currency.

The Central Bank said its foreign-currency reserves remain sufficient to meet demand for trade financing, overseas card settlements and cash sales to travelers.

Oil Disruptions Drive Fiscal Pressure

The currency decision comes as Iraq struggles to maintain oil exports during the disruption around the Strait of Hormuz.

Oil is the main source of revenue for the Iraqi state. Disruptions to Gulf shipping have forced Iraq to seek alternative ways to move crude and maintain export income.

Iraq’s Oil Ministry said average crude exports reached about 2.6 million barrels per day during September through the date of its latest assessment. The ministry described maintaining those volumes as a significant effort under conditions that included the continued closure of the Strait of Hormuz.

Earlier export data showed how sharply flows had been affected. Iraq exported about 2.34 million barrels per day in August, compared with more than 3.6 million barrels per day before the war.

Iraq has also worked to use alternative transport routes as it tries to keep oil moving despite the disruption.

A Weaker Dinar Raises Government Revenue in Local Currency

The devaluation changes the amount of Iraqi currency the government receives when it converts dollar oil revenues.

At the new rate, each dollar of oil revenue produces more dinars for the state.

That can help the government meet dinar-denominated spending obligations while dollar oil income is under pressure.

The decision also comes as Iraq faces wider budget constraints. Finance Ministry data show the government continues to rely heavily on oil and mineral revenues in its budget accounts.

The currency change therefore serves as a fiscal measure as well as an exchange-rate adjustment.

Import Costs and Household Pressure

The weaker official rate also makes imported goods more expensive when measured in dinars.

That matters because businesses and consumers that need dollars must now pay more dinars for the same amount of foreign currency.

The gap between the official rate and the parallel market adds another layer of pressure.

On Wednesday, the dollar traded above 1,700 dinars in Iraq’s parallel market, substantially higher than the new official public rate. Exchange rates also differed between Baghdad, Erbil and Basra.

The market gap means the official adjustment does not fully describe the dinar’s effective market value.

Iraq Tries to Keep Oil Revenue Flowing

The government is trying to preserve oil exports while shipping through the region remains disrupted.

Iraq has used alternative export arrangements and has also sought to maintain access through the Strait of Hormuz when possible. The state-owned Oil Tanker Company said earlier this month that it had transported 2 million barrels of Iraqi crude through the strait aboard a very large crude carrier.

The measures reflect the central problem facing Baghdad: oil remains the foundation of government finances, but the routes used to sell that oil are exposed to regional conflict and shipping risks.

The dinar adjustment gives the government more local currency for each dollar of oil income. At the same time, it increases the cost of imports and can reduce household purchasing power.

The Central Bank said the new exchange rates are intended to meet the state’s financial and economic requirements and stressed that its foreign reserves remain adequate.

Iraq’s currency move shows how the disruption of regional energy shipping is now reaching directly into domestic economic policy, with effects on government finances, businesses and consumers.

Reporting Credit: Central Bank of Iraq; Iraqi Council of Ministers; Iraqi Ministry of Finance; Iraqi Ministry of Oil; State Oil Marketing Organization; Iraqi Oil Tanker Company; official Iraqi budget and oil-export data.

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