Iraq reduced the value of the dinar against the dollar, on Wednesday, within the framework of a new exchange rate structure approved by the government, in a move that economists said reflects the repercussions of the disruption in oil sales, the main source of the country’s revenues, due to the American and Israeli war on Iran.
The government set the new exchange rate at 1,520 dinars to the dollar, a decrease of approximately 14.5 percent from the previous official rate, according to a decision of the Council of Ministers and a statement by the Ministry of Finance.
Under the decision, which was approved on Tuesday and entered into force on Wednesday, the Ministry of Finance set the purchase price of the dollar at 1,500 dinars, while its selling price from banks and non-banking financial institutions to the final beneficiaries is 1,510 dinars to the dollar.
The Central Bank of Iraq said, in a statement, “The new exchange rate was approved during a Council of Ministers meeting on Tuesday evening, to meet the relevant financial, economic and monetary requirements.”
Iraqi analyst Muhammad Al-Saffar said that the devaluation of the dinar essentially represents a financial response to the shock to Iraq’s oil revenues as a result of the war and the disruption of exports, explaining that the decision “gives the government more dinars for every dollar of oil revenues, but it raises the cost of imports and reduces the purchasing power of families.”
The previous official exchange rate was set in 2023, while the market price remained higher than it with varying degrees, before the gap widened in recent months due to the repercussions of the war and disturbances in shipping movement through the Strait of Hormuz.
Pressure on the budget
The decision comes at a time when Iraq is facing pressure on its public finances as a result of the decline in oil exports. The draft budget assumes an oil price of $58 per barrel, with spending amounting to 217 trillion dinars, or about $166 billion, and a deficit exceeding 40 trillion dinars, according to what four members of Parliament’s Finance Committee told Reuters.
The draft budget also assumes the export of about 4 million barrels per day of crude, including shipments from the Kurdistan region, while oil sales represent the largest portion of state revenues.
Iraq sought to find alternative ways to transport oil after the disruption of crude exports through the Gulf as a result of the war on Iran.
The unrest pushed global oil prices above $100 per barrel, and Iraq's exports declined to about 2.34 million barrels per day in August, compared to more than 3.6 million barrels per day before the war.
During the fifteenth consultative meeting held in the Bahraini capital, Manama, the ministers of trade and industry and heads of federations and chambers of commerce and industry in the Gulf Cooperation Council countries discussed the importance of strengthening the partnership between the government and private sectors, and supporting Gulf economic integration in the face of regional and international changes.
The Secretary-General of the Gulf Cooperation Council, Jassem Al-Budaiwi, confirmed that the meeting represents a strategic dialogue platform that brings together policy makers and decision-makers with representatives of the private sector, with the aim of enhancing joint cooperation and stimulating economic growth for the GCC countries, in addition to addressing the regional and international economic challenges facing the Gulf private sector.
Al-Budaiwi explained that the private sector plays a vital role in achieving the national goals of the GCC countries and enhancing the process of joint Gulf cooperation, noting that the meeting focuses on the challenges faced by the private sector, and working to overcome them by finding appropriate solutions.
For his part, President of the Federation of Gulf Chambers and Chairman of the Board of Directors of Qatar Chamber, Sheikh Khalifa bin Jassim Al Thani, stressed the importance of strengthening Gulf integration and building a more flexible commercial and logistical system capable of dealing with regional and international changes and disturbances, in a way that ensures the continuity of the flow of goods, maintains the security of markets, and enhances the competitiveness of the Gulf private sector.
He praised the efforts of the General Secretariat of the Gulf Cooperation Council in communicating and coordinating with the Union of Gulf Chambers, which contributes to enhancing cooperation and joint work between the two sides, indicating that the meeting represents an opportunity to enhance practical dialogue between governments and the private sector, and to transform lessons learned from current challenges into implementable policies and initiatives.
He pointed out the importance of strengthening the Gulf economy's ability to protect the continuity of trade and supply chains, support the competitiveness of the private sector, and ensure the security of markets in the face of any future disturbances.
The meeting concluded by emphasizing the importance of focusing efforts on the topics on the agenda, which contributes to reaching initiatives that support the growth of the private sector in the GCC countries, enhances its role as an engine for the economy, stability and development, and consolidates the position of the GCC countries as a global financial, investment and economic center.
The meeting was chaired by the Minister of Industry and Trade of the Kingdom of Bahrain, Chairman of the current session, Abdullah Fakhro, in the presence of trade ministers and heads of chamber federations in the Gulf Cooperation Council countries.
