Financial Analyst/Content Writer, RADEX MARKETS
Lawrence J. came from a strong technical and engineering background before pivoting into a more financial role later on in his career. Always interested in international finance, Lawrence is experienced in both traditional markets as well as the emerging crypto markets. He now serves as the financial writer for RADEX MARKETS.
AÇÃO
On Wednesday, the Iraqi government approved a 15% devaluation of the national currency, dropping the official exchange rate from 1,300 dinars per US dollar to 1,500.
Iraq relies on oil sales for roughly 90% of its government budget, but because of the ongoing hostilities surrounding Iran, the nation’s exports and revenue have both collapsed. Before the conflict erupted earlier this year, Iraq typically exported 3.6 million barrels of oil per day, but as of the time of writing, this figure now stands at around 2.4 million.
Iraq, as with most oil producing nations, gets paid for its crude oil exports in dollars, which it uses to purchase a number of vital goods on the international market. Food, medicines, vehicles, heavy machinery, advanced electronics, and even electricity imports are all covered by a steady flow of dollars into the country.
For everything else, the government pays in Iraqi dinars. Salaries, pensions, local contracts and virtually all domestic spending involves sovereign money.
By devaluing the dinar, every single US dollar brought into the country can now be converted into more dinars than before, allowing Baghdad to stretch its shrinking foreign reserves to better cover domestic spending.
The obvious problem is that as far as the average citizen is concerned, imports become more expensive due to the worse exchange rate.
The decision, coordinated by the Iraqi cabinet, the country’s central bank, and the ministry of finance, has triggered a significant backlash for exactly this reason. Lawmakers within the Iraqi parliament have protested the devaluation due to the loss of purchasing power and spike in consumer prices, but such concerns will likely fall on deaf ears.
To make matters worse, Iraq is currently facing a severe fiscal crisis characterised by a vast operational deficit and record-high debts. Because of the loss of crude oil revenue, the Iraqi government now spends far more than it receives, pushing Baghdad to borrow heavily.
According to the ministry of finance, total spending reached the equivalent of $45 billion in the first seven months of 2026, while revenue amounted to $26 billion over the same time frame, resulting in a deficit of $19 billion. For context, the deficit over the first seven months of 2025 totalled just $3.5 billion.
The problem is that Iraq has one of the most bloated and inefficient public sectors in the entire world. Huge swathes of the population rely on some form of public sector job, government pension, or welfare payment system to survive. Out of a total population of 48 million, Iraq has an active workforce of just 10-11 million people, and almost half of those are civil servants. Millions more are reliant on pensions and other state benefits, creating a highly dependent population.
The Iraqi state acts as a patronage network that captures international wealth via crude oil exports and then redistributes the cash flows to secure political loyalty. Such networks cannot simply be dismantled, even when said cash flows dry up.
Reducing public spending is all but impossible because doing so would cause immediate civil unrest and even a potential uprising against the people in charge. Such actions are not unprecedented and in fact occurred during the ‘Tishreen’ protests of 2019-2021.
Beyond the petroleum sector, Iraq has almost no domestic industry to speak of. Manufacturing and agriculture combined make up just 8% of GDP, a far smaller share than even other oil-producing nations. Petrodollars are the entire economy, absorbed and funnelled through the state apparatus to appease and stabilise the local population, but cash flows are drying up.
The Iraqi government is now building its 2027 budget around $58 per barrel crude oil, which is far below what the country would actually need to balance its books. Unless Iraq dramatically increases its oil exports, the country’s fiscal problems are here to stay.
About the Author
Lawrence J. came from a strong technical and engineering background before pivoting into a more financial role later on in his career. Always interested in international finance, Lawrence is experienced in both traditional markets as well as the emerging crypto markets. He now serves as the financial writer for RADEX MARKETS.
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