Iraq devalues currency as war and Hormuz closure squeeze cash

Iraq has officially devalued its currency for the second time in six years, setting a new exchange rate of 1,500 dinars per US dollar. This decision, approved by the Council of Ministers and the Central Bank of Iraq, aims to address a severe cash crunch caused by the ongoing Iran-Israel conflict and the ongoing closure of the Strait of Hormuz.

Iraq relies heavily on oil exports, which are nearly all transited through Hormuz, earning over 90 percent of its budget in dollars. The closure of Hormuz and increased shipping insurance costs have disrupted tanker traffic and delayed oil loadings, resulting in Iraq receiving fewer dollars for its oil exports. Consequently, the country needs more dinars to pay its public employees, farmers, and pensioners, leading to delayed salary payments and payment deferrals.

The finance ministry warns that without adjustments, Iraq could not fund its 2026 budget, which includes 100,000 new public jobs. While devaluation provides a fast fix by obtaining more dinars for each dollar of oil sold, it ultimately burdens Iraqis by increasing the cost of imported goods such as food, medicine, cars, and construction materials.