Iraq Devalues Dinar to 1,500 Per Dollar Amid War and Hormuz Disruption Cash Crunch

Iraq has officially devalued its currency once again, establishing a new official exchange rate of 1,500 Iraqi dinars per US dollar, according to a document reviewed by The National. The Council of Ministers approved this measure late on Tuesday following a recommendation from the Central Bank of Iraq, as outlined in a directive distributed by the banking regulator to all licensed banks, electronic payment companies, and exchange houses on Monday.

Under the new framework, the central bank will purchase from the Ministry of Finance at the rate of 1,500 dinars. The sale price to banks is set at 1,510 dinars, and subsequently to the public at 1,520 dinars. All financial institutions were instructed to update their systems, inform their branches, discontinue the previous rate, and adopt the new pricing starting from the beginning of business hours on Tuesday, the document states.

This marks Iraq's second major currency devaluation in six years. In December 2020, amid the Covid-19 oil crash, the central bank reduced the dinar rate from 1,182 to 1,450 per dollar to address a severe deficit. That rate was later adjusted to 1,320 as the official rate by the previous government, although market rates frequently traded higher.

The latest decision is prompted by a worsening cash shortage following the outbreak of the Iran-Israel war in June 2025 and the intermittent closures and threats affecting the Strait of Hormuz. Iraq generates over 90 percent of its budget in dollars through oil exports, nearly all of which must transit through Hormuz, the vital waterway transporting one-third of the world's seaborne oil.

Since the war involving Iran commenced on February 28, shipping insurance costs have surged, tanker operations have faced disruptions, and oil loadings from southern terminals at Basra have encountered delays and price discounts. Consequently, Iraq receives fewer dollars, and upon converting those funds into dinars to compensate approximately eight million public employees, contractors, farmers, and pensioners, the demand for dinars exceeds available reserves.

Over recent months, Baghdad has delayed salary disbursements across multiple provinces, postponed payments to wheat farmers and construction companies, and depended on short-term borrowing via state banks. The Ministry of Finance cautioned parliament that without adjustments, funding the 2026 budget—which incorporates 100,000 new public sector jobs requested by political blocs during government formation talks—would be impossible.

Devaluation serves as the most rapid remedy. By reducing the value of the dinar from 1,320 to 1,500, the government acquires approximately 13 percent more dinars for each dollar of oil sold, providing sufficient funds to cover salaries without printing dollars it lacks. However, the financial burden shifts directly to Iraqi citizens. A weaker dinar drives up the costs of imported food, medicine, vehicles, and construction materials, which comprise the vast majority of Iraq's imports. Following the 2020 devaluation, surging inflation sparked protests across southern provinces.