Iraq devalues dinar by 15 percent as war disrupts oil exports and traders face losses

On October 7, the Central Bank of Iraq introduced a new official exchange rate of 1,520 dinars per US dollar for cash sales to the public, down from the previous rate of 1,320 dinars per dollar. The devaluation, reducing the dinar's value by almost 15 percent, allows the government to receive more local currency for each dollar of oil revenue, helping it cover public spending including salaries.

Before the war, Iraq exported around 3.5 million barrels of oil per day through the Strait of Hormuz, accounting for 90 percent of government revenue. The disruption of those exports has created a severe cash crunch.

Traders are bearing the immediate impact. Hamza al-Rudayni, a food trader in Baghdad's Jameela market, told Al Jazeera he lost roughly 25 million Iraqi dinars (about $16,500 at the new rate) overnight. "All I know is I woke up a few days ago to discover that I had lost 25 million Iraqi dinars," he said. "Market activity has ground to a halt. Traders buy goods in dollars but sell them in dinars, as regulations prohibit them from selling in dollars."

Al-Rudayni entered the wholesale trade last year after losing his previous job at a private Iraqi bank that he says was sanctioned by the US Treasury. He has chosen to suspend buying and selling until the situation stabilises, as exchange-rate fluctuations make prices unpredictable. Larger merchants, he said, lost billions of dinars.

The government's decision has sparked uncertainty across Baghdad's wholesale markets, with no clear timeline for when trading will normalise.

Analysis

Why This Matters

The devaluation directly affects Iraqis' purchasing power, particularly for imported goods priced in dollars, raising the cost of living.
It highlights Iraq's acute vulnerability to external shocks: the country relies on oil exports through the Strait of Hormuz for 90 percent of government revenue, and the war with Iran has severed that pipeline.
The move may stabilise public finances in the short term, but could fuel inflation and erode public trust as traders pass higher costs to consumers.

Background

Iraq is one of the world's largest oil exporters, and the Strait of Hormuz is a critical chokepoint for its crude shipments. The US-Israeli war on Iran, which escalated in recent months, disrupted those exports, cutting off the primary source of government revenue. To cover its spending commitments, including public-sector salaries, the Central Bank devalued the dinar so that each dollar of oil income yields more local currency. This is a familiar move for oil-dependent states facing budget gaps, but it comes with risks: ordinary Iraqis already grappling with high unemployment and weak services now face higher prices for imported food and goods.

Key Perspectives

Traders and small business owners: They are the most immediate losers, as their dinar-denominated holdings have lost value, and they cannot raise prices fast enough to keep up with the exchange rate. Many have stopped trading entirely, waiting for stability. The Iraqi government: It needs the devaluation to close the budget gap and keep paying salaries. Officials argue the move is necessary to weather the crisis until alternative export routes or a ceasefire allow oil flows to resume. Consumers and critics: The devaluation risks triggering a spike in inflation, as imported goods become more expensive. Critics warn that without broader economic reforms, the devaluation is a short-term fix that will erode living standards.

What to Watch

Whether the Central Bank intervenes further to stabilise the dinar or lets it float more freely.
The speed at which traders resume normal pricing and activity, which will indicate market confidence.
Any progress on Iraq's efforts to diversify oil export routes away from the Strait of Hormuz, which could reduce future vulnerability.

Analysis

Why This Matters

Background

Key Perspectives

What to Watch

Sources