Iraq devalues the dinar as Hormuz losses drain its oil revenue

Iraq devalued its currency as disruption in the Strait of Hormuz hit its oil exports¹. One account of the move put the devaluation at 14.5 percent and said the trouble at the strait had cut into the government’s main source of revenue². The sources do not give the new official rate or the size of the export shortfall behind it^1,2.

The fiscal position before the decision was already strained. Figures attributed to the accounting department of an Iraqi ministry showed revenues covering only 57 percent of government expenditures, with the budget deficit reaching 29.2 trillion dinars³. “Every past oil shock has pushed Iraq into trouble,” said Ziad Daoud, Bloomberg’s chief emerging-market economist, who dated earlier episodes to 2008 and 2014¹. The deficit figures were carried by Kurdistan Press³.

Routes around the strait

Baghdad is also moving barrels outside the chokepoint. Iraq transported two million barrels of crude beyond the Strait of Hormuz, its first such operation in decades, according to the Iraqi News Agency, in a report published on Sunday⁴. Syria is set to provide another route for Iraqi crude exports that avoids the strait, with a stream of trucks being lined up to haul the oil⁶.

Neither account gives a capacity figure for the trucking plan or for how often the shipment can be repeated^4,6. The strait itself is still described as shut: an adviser to the commander-in-chief of Iran’s Revolutionary Guards said Hormuz remains closed⁵.

What it means for investors

The devaluation is the second adjustment Iraq has made to the export shock, after the search for alternative routes, and it works on the domestic side of the ledger rather than on volumes^1,2,6. It lowers the dinar value of the currency Iraqis hold while the state’s dollar receipts are interrupted, and the sources tie that interruption directly to the strait rather than to the oil price².

Demand for Iraqi barrels is meanwhile being redirected by the same conflict. China’s turn to Iraqi crude has been read as evidence of the growing impact of the blockade on Iranian oil, which puts Iraqi grades in demand even as Baghdad struggles to ship them⁵. That report also records an Iranian statement on the strait made on Wednesday⁵. What the sources do not supply is how long the authorities expect the disruption to last, or what share of exports the new routes can carry^1,3,6.