Iraq devalues dinar to help meet spending commitments

• Cut to 1,520 dinar to the dollar
• Increase to oil revenues
• Likely to result in price rises

Iraq has devalued its currency against the US dollar for the first time in three years as disruption to oil exports squeezed government revenues and widened its fiscal deficit.

The move will give Baghdad more dinars for each dollar of oil revenue, helping it meet domestic spending commitments. Industry analysts warned, however, that it will also raise import costs and consumer prices.

The central bank said in a document published by the state news agency on Tuesday that it had devalued the dinar in line with a cabinet decision.

The dinar exchange rate fell to 1,520 against the US dollar from 1,320, the first devaluation since 2023.

The cabinet made the decision on Tuesday despite government denials in recent months.

“The central bank has the authority to determine the dinar rate but it has been reluctant to devalue,” said Nabil Al-Marsoomi, an economics professor at Basra University in southern Iraq. “Now it had no choice but to accept the cabinet decision.

“The devaluation will no doubt generate more dinar liquidity for Iraq and will allow it to pay salaries, but it will lead to a rise in prices.”

Iraq was hit hard by the fall in crude exports after the effective closure of the Strait of Hormuz, its main route to global markets, although levels have begun to rise again.

Falling exports widened Iraq’s budget deficit, as the country relies heavily on oil sales for income. The deficit increased by nearly $6 billion to about $22 billion (ID29 trillion) in the first seven months of 2026, finance ministry figures show. Oil export earnings made up most of Iraq’s income, reaching nearly ID30 trillion over the seven-month period.

The official gazette reported on Wednesday that Iraq expects to spend nearly ID217 trillion ($167 billion) in 2027, with oil exports forecast to exceed pre-war levels and rise to around 4 million barrels per day.

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Although Baghdad forecasts a conservative oil price of $58 a barrel, it expects a deficit of around $32 billion. That is far below the $49 billion deficit projected in Iraq’s landmark three-year budget of $153 billion for 2023-2025.

The budget will soon go to parliament for discussion, particularly over funding for public sector wages, the Al-Sabah newspaper reported.

“Devaluing the dinar has positive and negative effects,” said Manar Al-Obaidi, head of the Iraq Future think tank. “It will surely boost dinar revenues but at the same time it will cause consumer price increases. This will affect not only the poor but all Iraqis.”

Al-Marsoomi said the actual deficit could widen if Iraq fails to meet its oil export target next year, as it cannot reduce current spending: “In the first seven months of this year, oil revenues covered only around 76 percent of those wages and social aid.

“This explains the large fiscal gap of a monthly average of more four trillion dinars during that period.”