Iraq Again Devalues Dinar to Fill Wartime Deficit; Lawmakers Denounce It as 'Waging War on the Poor'

Baghdad — The Iraqi cabinet this week approved lowering the official dinar-to-dollar exchange rate from roughly 1,320 to 1,520, a 200-point adjustment. Al Jazeera, citing government insiders, reported that Finance Minister Falih Salih and the governor of the Central Bank of Iraq pushed the adjustment at the recommendation of an emergency proposal, and that starting this Wednesday, commercial banks and exchange companies raised their dollar-selling prices to the public accordingly.

The decision was announced immediately after the 2027 annual budget was passed. Iraq plans to spend 217 trillion dinars (roughly $166 billion) next year, but is expected to run a deficit exceeding 40 trillion dinars (around $30 billion). The root of the deficit lies in the U.S. war on Iran — the vast majority of Iraq's crude oil must be shipped through the Strait of Hormuz to global markets, and shipping through the strait has been seriously disrupted since fighting broke out in late February.

Iraq's oil exports in August fell to 2.34 million barrels per day, far below the prewar average of 3.6 million barrels per day. Al Jazeera, citing remarks by Prime Minister Ali Zaidi made last month, reported that the country had lost some $60 billion in oil revenue as a result, with Zaidi also acknowledging that Iraq is 'facing extraordinary economic challenges.' Oil revenue accounts for more than 90 percent of the federal budget's funding. The Central Bank of Iraq's foreign exchange reserves have shrunk from roughly $106 billion before the war to about $80 billion by the end of August.

Reuters, citing Iraqi analyst Mohammed Safar, said the exchange rate arrangement 'gives the government more dinars for every dollar of oil revenue it receives, but raises import costs and squeezes household purchasing power' — the real value of oil revenue shrinks on paper, while import costs are passed on to ordinary families.

The devaluation decision triggered a backlash in parliament. Wednesday's scheduled agenda was canceled, and lawmakers instead debated the matter; the finance minister and central bank governor are expected to appear in parliament on Thursday to face questioning. Dozens of opposition lawmakers issued a joint statement that day, criticizing the central bank for failing to brief parliament on the decision-making process in advance. Lawmaker Aziz Nasser al-Shammari, speaking on their behalf, said they were 'deeply surprised' by the decision and declared angrily: 'It is wrong to wage war on the poor in this way.'

Hassan al-Asadi, leader of the 'Path of Truth' National Alliance parliamentary bloc, rejected the measure and proposed alternatives such as cutting non-essential spending to balance the budget; the feasibility of such proposals remains unclear. Lawmaker Saba al-Asadi directed criticism at what the Finance Ministry and the central bank described as financial mismanagement, vowing to bring the matter before parliament for review. Al-Asadi also warned that the gap between the official exchange rate and the parallel-market rate is widening and will 'cause serious harm to the poor and vulnerable.' On the day the new official rate took effect, the dollar price on the parallel market rose accordingly, and the gap between the two rates widened further; Al Jazeera, citing market observers, pointed out that in fact most Iraqis cannot obtain dollars at the official rate and can only purchase foreign exchange at parallel-market prices, so the pain of the devaluation is amplified in daily life.

The transmission path is fairly direct. Iraq is heavily dependent on imports for everything from food and medicine to industrial raw materials. Al Jazeera reported last month that consumers and business owners say prices have risen significantly since the Iran war began, with delays and disruptions to seaborne imports. In their joint statement, lawmakers asked: with prices rising, import costs climbing, taxes increasing, unemployment growing and salaries and benefits being delayed, on what basis is the central bank pushing through a devaluation at this time?

This is not the first devaluation in Iraq. In December 2020, an oil-price collapse forced the government to run out of cash, and Iraq adjusted the dinar rate from roughly 1,182 to 1,450; a leaked budget draft that year paired the adjustment with civil-service pay cuts, triggering protests by public-sector employees. Lawmaker Mohammed Dallaji warned at the time that unless the government aided poor families, prices would surge. In January 2023, against the backdrop of U.S. restrictions on dollar circulation in Iraq, the dinar once slid to about 1,670 per dollar; then-Prime Minister Mohammed Shia' al-Sudani subsequently replaced the central bank governor and, through government efforts, reset the public exchange rate for purchasing dollars at 1,320. In the latest statement, lawmakers asked: the dollar price lowered by the previous government has now been raised again — how are ordinary people supposed to bear it?