Baghdad, Iraq – Sitting anxiously in his small office in Jameela market, one of Baghdad’s main wholesale markets, food trader Hamza al-Rudayni is waiting to see what the coming days will bring.
A decision by the Iraqi government to devalue the country’s currency, the dinar, against the US dollar has left traders like him facing sudden losses and uncertainty over the prices they should charge for their goods.
“I don’t know what to do,” al-Rudayni told reporters after the devaluation reduced the dollar value of his dinar holdings, leaving him with less money to purchase imported goods. “All I know is I woke up a few days ago to discover that I had lost 25 million Iraqi dinars because of this decision, while larger merchants lost billions.”
Al-Rudayni entered the wholesale trade market last year after losing his previous job at a private Iraqi bank that he says was sanctioned by the United States Treasury. He sold his car and used his savings to start trading with a larger merchant before recently launching his own business.
With exchange-rate fluctuations making prices unpredictable, al-Rudayni said he and many other traders have chosen to suspend buying and selling until the situation stabilises. Market activity has ground to a halt as merchants buy goods in dollars but are required to sell them in dinars due to regulations.
That dynamic creates a severe operational challenge: a weaker dinar means merchants must pay significantly more in local currency for goods imported in dollars, while making it difficult to determine the appropriate price to charge customers for existing stock.
The Iraqi government introduced a new official exchange rate against the US dollar in an attempt to ease a financial crisis triggered by regional conflict and the disruption of oil exports through the Strait of Hormuz. Before the disruptions, Iraq exported around 3.5 million barrels of oil per day through the waterway, accounting for the vast majority of government revenue.
The Central Bank of Iraq set the new rate at 1,520 dinars per US dollar for cash sales to the public, shifting from the previous rate of 1,320 dinars per dollar. Devaluing the currency by nearly 15 percent allows the state to receive more local currency for every dollar of oil revenue it converts, helping cover mandatory public spending, including government employee salaries.
Iraqi Prime Minister Ali al-Zaidi defended the measure during a meeting with parliamentary leaders, stating that he bore full responsibility for the choice. He noted that the administration faced difficult options to cover salaries, including steep salary cuts, delayed payments every 45 days, or turning to foreign loans.
Al-Zaidi added that his administration had inherited public debt exceeding 208 trillion Iraqi dinars when it took office, requiring approximately 10 trillion dinars each month to cover payroll and essential expenditures. Although the Strait of Hormuz crisis caused a severe fiscal squeeze, oil exports have partially recovered, though they remain below pre-war levels.
Financial advisers to the prime minister noted that foreign currency reserves had declined significantly during the squeeze, leading the government to borrow from domestic banks and adjust the exchange rate to maintain stability and ensure timely salary disbursements.
Economists have warned that while adjusting the exchange rate may relieve immediate fiscal pressures, it fails to resolve deeper structural weaknesses in the national economy. Experts argue that exchange rate adjustments should only follow the exhaustion of other fiscal remedies and must not serve as a substitute for comprehensive economic reform.