Back in the pre-1990 days, one Iraqi dinar could fetch over three U.S. dollars — 1 IQD = 3.2169 USD, to be exact. Today, that seems like a distant dream, and understandably so. But with oil prices showing strength and Iraq sitting on one of the world’s largest reserves, the question arises: could oil be the magic key to restoring the dinar’s former glory? Or is it more complicated than that?

Let’s break down where Iraq stands today, how oil affects its currency, and whether soaring oil prices alone can turn back the clock for the dinar.

Iraq’s Current Oil Export Strategies

Iraq’s oil sector is the backbone of its economy, shaping everything from government budgets to the value of the dinar. While oil prices remain unpredictable, Iraq is not standing still. The country is working on multiple fronts to strengthen its oil export strategy and secure more stable revenues for the future.

• Expanding Production Capacity Through Partnerships: Iraq plans to increase its production capacity to over 6 million barrels per day by 2029. This ambitious goal is being pursued through collaborations with global energy giants like BP, ExxonMobil, and TotalEnergies. In addition to these major players, Iraq continues to hold licensing rounds to attract foreign investments and modernize its ageing oil fields. These efforts are aimed at upgrading infrastructure, improving efficiency, and ensuring Iraq remains competitive in the global oil market.
• The Importance of the Iraq–Turkey Oil Pipeline: Another significant part of Iraq’s strategy is reviving the Iraq–Turkey pipeline, which has been inactive due to political and security issues. If restored, the pipeline could add up to 300,000 barrels per day to Iraq’s oil exports. At current oil prices, this increase could bring in approximately $11 billion annually. This pipeline would not only boost export capacity but also provide Iraq with additional leverage in global markets.
• Diversifying Export Routes and Strengthening Ports: Iraq isn’t just focusing on pipelines; it’s also expanding its southern export facilities, particularly in Basra. These improvements aim to handle larger shipping volumes and reduce export bottlenecks. By diversifying export routes and destinations, Iraq is working to decrease its dependence on a handful of export channels, making the economy more resilient against regional disruptions or political tensions.
• Challenges Facing Iraq’s Oil Export Ambitions: Despite these efforts, Iraq faces several challenges. OPEC+ quotas limit how much oil Iraq can produce and export. Political instability and ongoing security concerns also pose risks. Additionally, building stronger relations with key regional players like Turkey and Iran will be essential to meeting production and export goals. Iraq’s success will depend on its ability to balance ambitious growth with diplomatic stability and strategic cooperation.

How Global Oil Market Volatility Affects the Currency

Iraq’s economy is tightly linked to global oil prices, and this connection directly influences the strength and stability of the Iraqi dinar. The following factors show how oil price fluctuations affect the country’s currency and financial stability:

• Rising Oil Prices Strengthen Foreign Reserves: When oil prices rise, Iraq’s foreign currency reserves receive a significant boost. For example, in 2022, when oil prices averaged nearly $95.60 per barrel, Iraq’s foreign reserves grew to over $100 billion by 2023. This increase gave the Central Bank of Iraq the ability to support the dinar, maintain liquidity, and manage budget deficits with more confidence.
• Falling Oil Prices Create Financial Pressure: On the flip side, falling oil prices have a direct negative impact on Iraq’s revenue. Each $1 drop in oil price reduces annual government income by approximately $1.3 billion. If prices stay low for an extended period, this strains Iraq’s fiscal budget and limits the central bank’s ability to maintain exchange rate stability. This often results in widening gaps between the official exchange rate and the parallel market rate.
• Volatile Oil Prices Disrupt Budget Planning: Iraq’s budget planning relies heavily on oil price projections. For instance, the 2023 budget was based on an oil price of $70 per barrel. However, unpredictable swings in the oil market can force sudden mid-year revisions, impacting government spending and shaking investor confidence.
• Dollarization Increases Currency Vulnerability: Another challenge is Iraq’s dollarized economy. Around half of the country’s money supply is in USD. This dependence on the U.S. dollar makes the dinar more susceptible to foreign exchange market fluctuations and reduces overall domestic demand for the local currency.

Are High Oil Prices Enough for a Dinar Comeback?

Here’s the million-dollar question: if oil prices climb and remain high, can the dinar recover to its pre-1990 glory? Unfortunately, the answer isn’t as straightforward as many would hope.

Several systemic issues block the path to a sustained dinar rebound, despite oil revenue windfalls.

1. Central Bank Interventions: The CBI is forced to sell approximately $180 million per day in currency auctions to maintain exchange rate stability. While this keeps short-term volatility in check, it drains precious foreign reserves and does nothing to address the root problem: excessive import reliance and weak industrial production.
2. Dollarization and Currency Speculation: Iraq’s economy is deeply entrenched in dollarization. This happens for a few reasons: lack of trust in the dinar, high inflation fears, and speculation. The parallel market often sees rates 10% higher than the official rate due to smuggling, money laundering, and restricted dollar access. This parallel market gap widens whenever there’s global uncertainty.
3. Corruption and Capital Flight: Corruption continues to plague Iraq’s financial system. Since 2003, an estimated $150 billion has been lost to graft and illicit capital outflows. These are not just numbers — they represent lost opportunities for domestic investment, job creation, and infrastructure development that could have otherwise supported the dinar’s appreciation.
4. Economic Structure: Iraq’s economy remains overwhelmingly dependent on oil. Diversifying into agriculture, manufacturing, and services would reduce volatility, but efforts have been sluggish. Without a vibrant non-oil economy, the dinar’s value will always be a hostage to oil price swings.

Oil as a Catalyst: Realistic Scenarios

Let’s play out some scenarios:

• Scenario 1: $100+ Oil Prices Sustainably
  If oil prices stay above $100 for several years, Iraq’s reserves could balloon further. This would give the CBI more ammunition to narrow the gap between the official and parallel market exchange rates, possibly allowing the dinar to appreciate modestly — but not close to pre-1990 levels.
• Scenario 2: Pipeline Resumption and Production Increases
  Reopening the Iraq-Turkey pipeline and meeting production goals of 6+ million barrels per day could add billions in revenue. This would improve the budget balance, reduce borrowing needs, and stabilize the currency. But again, without tackling systemic issues, gains may be short-lived.
• Scenario 3: Structural Reform + High Oil
  The real jackpot scenario would be a combination of sustained high oil prices and structural reforms. This means diversifying the economy, tackling corruption, and building confidence in domestic banking. Only this mix could move the needle in a meaningful, long-term way.

Final Thought: Oil as Savior or Temporary Relief?

The simple truth is that oil alone cannot resurrect the dinar’s historic highs. While Iraq has the advantage of immense oil wealth, the country faces entrenched challenges that oil revenue alone cannot solve. Even with oil prices at $100 or higher, the absence of economic diversification, rampant corruption, political instability, and capital flight will continue to weigh on the dinar.

The Central Bank of Iraq’s 2025 strategy, which includes tightening dollar access and combating currency speculation, is a step in the right direction. But to truly dream of exchange rates that mirror pre-1990 levels, Iraq would need decades of reform, starting with rebuilding trust in the dinar, nurturing domestic industries, and promoting a stable investment climate.

So, could oil catapult the Iraqi dinar to its old highs? The answer is: No, not on its own. 

Oil is a powerful lever, but without comprehensive reform, it will always be a temporary crutch rather than a long-term solution. In the end, oil may fill Iraq’s coffers, but only Iraq’s policies can restore its currency.

Because currencies aren’t built on black gold alone they are built on trust, resilience, and vision.