Would Iraqi Dinar Appreciate in Value in the Short Term?

If you’ve been tracking global currency markets or chatting in investor circles, chances are you’ve heard whispers—or even bold declarations—about the Iraqi dinar (IQD) making a big move. But what’s the real story behind the buzz? Can the dinar break out of its long-held pattern and climb higher in the short term, or is this just another cycle of speculation?

With Iraq undergoing economic reforms, backed by its formidable oil reserves and attempts to diversify, it’s fair to ask: could we see the dinar appreciate over the next 6 to 12 months? Let’s take a deep dive into the current dynamics, unpack the real drivers behind the IQD, and explore what could realistically shape its value, without the hype.

Curious about what drives the Iraqi dinar? 

Let’s break it down and explore the complex mix of economic indicators, central bank policies, and global trends that shape the IQD’s exchange rate.

Current Drivers of Dinar’s Exchange Rate Movement

Before forecasting any potential appreciation, it’s essential to understand the factors that currently influence the dinar’s value.

1. Oil Dependency Iraq’s economy is deeply intertwined with its oil sector, which contributes more than 90% of government revenues. This connection makes the IQD highly sensitive to fluctuations in oil prices. When oil prices rise, Iraq’s foreign reserves swell, supporting a stronger dinar. Conversely, when prices drop, the dinar can face pressure. In 2024, a 10% decline in crude prices significantly strained Iraq’s budget, leading to increased speculation about possible devaluation.
2. Political and Economic Reforms The Iraqi government has made strides in implementing anti-corruption reforms and encouraging economic diversification. Sectors like agriculture, infrastructure, and tourism are being promoted, but progress has been gradual. The Central Bank of Iraq (CBI) has also authorized the use of non-USD currencies, such as the euro and Chinese yuan, to reduce Iraq’s dependency on the dollar in international trade. While this is a step forward, challenges with implementation and institutional resistance remain.
3. Foreign Reserves and Investments Iraq’s foreign reserves stood at $87.6 billion by the end of 2024, a 10% drop from the previous year. Nonetheless, the reserves remain substantial, bolstered by CBI’s investments in U.S. and European treasury bonds, which yield approximately $2 billion annually. This liquidity provides a cushion against external shocks and helps maintain currency stability.

Short-Term Economic Indicators to Watch

Monitoring key economic metrics can offer insight into the short-term direction of the dinar. Here are a few relatively stable indicators pointing to a slow but steady recovery in Iraq’s economic environment.

• Inflation Rate: Currently at 2.5%, this moderate rate supports exchange rate stability.
• GDP Growth: Projected at 5.3% for 2025, driven by oil and modest progress in non-oil sectors.
• Trade Balance: Iraq recorded a $6 billion surplus with the U.S., reflecting strong export activity.
• Foreign Reserves: Despite the decline, $87.6 billion still provides a significant buffer.

Impact of Oil Revenues on Currency Fluctuations

Oil remains the backbone of Iraq’s economy, and as such, any discussion about the dinar must consider the energy sector.

• Production and Export Levels: In 2024, Iraq produced an average of 4.2 million barrels of oil per day (bpd), exporting around 3.3 million bpd. These figures are robust but vulnerable to shifts in OPEC+ policy.
• OPEC+ Influence: If Iraq complies with OPEC+ production cuts, supply constraints could drive up global oil prices, indirectly supporting the dinar. On the other hand, overproduction or global demand slowdowns could depress prices.
• Geopolitical Events: Tensions in the Middle East or disruptions in major shipping lanes can lead to short-term oil price spikes. When this happens, Iraq benefits temporarily through improved revenues and currency support.
• Long-Term Diversification Projects Efforts like the $17 billion Al-Faw Port project are aimed at reducing oil dependency. While promising, these initiatives won’t produce significant economic results in the short term.

CBI’s Role in Controlling Dinar Volatility

The Central Bank of Iraq plays a critical role in managing the dinar’s value through various tools and policies.

1. Fixed Exchange Rate Policy The CBI maintains a managed exchange rate regime, keeping the IQD trading around 1,300–1,310 per U.S. dollar. This approach curbs extreme volatility but also limits appreciation potential in the short term.

2. Currency Auctions The CBI conducts daily currency auctions to stabilize the dinar. These auctions supply U.S. dollars to the local market, easing demand pressure and maintaining exchange rate stability.

3. Electronic Monitoring Enhanced scrutiny on international transactions through electronic transfer systems has helped reduce smuggling and black-market activity, improving overall transparency.

4. Diversification of Reserves By holding reserves in multiple currencies—including euros, yuan, and UAE dirhams—the CBI aims to reduce Iraq’s overreliance on the dollar. This strategy also acts as a buffer against fluctuations in any single currency.

Realistic Short-Term Value Projections

Modest gains are not out of the question. Should oil prices remain consistently high and if Iraq speeds up reform implementation, the dinar could see a gradual uptick toward the 1,250–1,280 IQD/USD range. Despite the positive developments, a significant appreciation of the Iraqi dinar in the next 6–12 months is unlikely due to several restraining factors:

• Managed Exchange Rate: The CBI’s firm control over the exchange rate limits room for appreciation.
• Oil Price Uncertainty: With Brent crude expected to range between $75 and $95 per barrel, revenue forecasts remain volatile.
• Institutional Bottlenecks: Slow bureaucratic processes and inefficiencies make swift economic transformation difficult.

Potential Catalysts for Appreciation

While the current environment suggests caution, certain triggers could nudge the dinar higher:

• Stabilization in Iraq’s political landscape post-2025 elections.
• Strong performance in non-oil sectors such as agriculture or telecommunications.
• Continued high oil prices coupled with increased export volumes.
• Improved investor confidence is driven by clearer monetary policies and better regulation.

Conclusion

The Iraqi dinar remains a currency of interest for those who are patient and understand the underlying complexities. In the short term, dramatic appreciation is unlikely due to the managed exchange rate system, oil price fluctuations, and ongoing structural reforms. However, Iraq is taking meaningful steps—such as diversifying its economy, stabilizing its financial institutions, and enhancing transparency—that could lay the groundwork for future gains.

A realistic outlook suggests that while a sharp revaluation may be off the table, a gradual and modest appreciation is within the range of possibility if economic fundamentals continue to improve. 

Investors and observers would do well to watch CBI policy decisions, oil market trends, and political developments closely as they shape the dinar’s trajectory in the months ahead.