Iraq devalued the dinar by 14.5% on Wednesday, setting the official exchange rate at 1,520 dinars per dollar. The move comes after months of disruption to crude exports through the Strait of Hormuz eroded the government's primary revenue stream.

The cabinet adopted the new exchange-rate structure on Tuesday, and the changes took effect Wednesday. The decision establishes a two-tier pricing mechanism across Iraq's foreign-currency market.

Under the new structure:

• The Finance Ministry's purchase rate for dollars is set at 1,500 dinars.
• Banks and non-bank financial institutions will sell dollars to end beneficiaries at 1,510 dinars.
• The overall official rate stands at 1,520 dinars per dollar.

Why did Baghdad act now?

Oil export revenue, which dominates Iraq's fiscal accounts, has taken a sustained hit from the interruption of shipments through the Strait of Hormuz. The waterway carries the bulk of Iraq's crude to market, and prolonged disruption has drained the treasury's dollar inflows, pressuring the currency peg.

Baghdad had been weighing the devaluation for some time before this week's cabinet decision, according to the source report. The move signals that the fiscal strain from reduced oil receipts finally outweighed the political cost of cutting the dinar's purchasing power.

A weaker dinar raises the local-currency cost of imported goods and refined products — a sensitive issue for Iraqi households — but it also reduces the dinar value of dollar-denominated fiscal obligations relative to oil receipts and helps the treasury stretch diminished hard-currency reserves.

What does the devaluation change?

The 14.5% adjustment re-prices every dollar that moves through Iraq's official currency system. The spread between the Finance Ministry's 1,500-dinar purchase rate and the 1,510-dinar rate at which banks and non-bank institutions sell to end users embeds a margin within the official channel itself.

For the oil sector, the devaluation lands at a moment when export volumes through Hormuz remain constrained. Iraq's upstream royalty and tax receipts, largely calculated in dollars, will translate into more dinars for the budget — but only on the barrels that actually ship.

What comes next?

The watch items are threefold. First, whether Hormuz transit normalizes and dollar inflows recover, easing pressure on the new peg. Second, how the parallel market absorbs the official rate — the gap between official and street pricing will indicate whether further adjustment looms. Third, the cabinet's next fiscal package, as Baghdad confronts a revenue base that the devaluation alone cannot restore.

Until export volumes through the strait recover, the dinar's new level remains a response to strain rather than a resolution of it.