Iraqi dinar falls a week before dollar selling platform closes
For days now, the Iraqi markets have witnessed a noticeable decline in the value of the Iraqi dinar against the US dollar , amidst confirmations by Iraqi financial experts that this rise is due to the imminent closure of the foreign currency selling platform, specifically the dollar, by the Central Bank of Iraq as part of a series of reforms it had pledged at the beginning of last year.
For about 18 years, the Central Bank of Iraq has been carrying out dollar sales operations against the Iraqi dinar with the aim of maintaining a stable value for the dinar and reducing the burden of speculation in the market. However, a number of reasons prompted it to stop what is known locally as the “dollar auction,” including dollar smuggling operations to neighboring countries and huge money laundering crimes , which Washington says are in the interest of Iranian parties, most notably the Iranian Revolutionary Guard.
Today, Thursday, the value of the Iraqi dinar decreased against the dollar, by 1520 dinars per dollar, after it had maintained a value of between 1480 and 1500 dinars per dollar in the parallel market, while the value set for the dinar by the Central Bank is 1320.
In this regard, member of the Finance Committee in the Iraqi Parliament, Mohammed Radhi, told Al-Araby Al-Jadeed, “The decline in the value of the dinar in the parallel market, not its official value, is due to the imminent suspension of the dollar selling platform by the Central Bank. This step caused fear in the local market, which prompted traders to increase demand for the dollar from the parallel market, which led to its rise.”
He expected the rise to be temporary for a period of time, “after getting used to stopping the platform and adopting the normal thing, which is going to banks and official banks to conduct foreign commercial transfers,” stressing that “the Central Bank of Iraq has expanded the basket of foreign currencies that can be dealt with and ended reliance on the dollar only, and this diversity will reduce the dollar exchange rate in the parallel market and raise the value of the Iraqi dinar in the future, and the tasks of the Central Bank will be limited in the coming days only to monitoring and following up on the work of local banks covered by direct foreign commercial transfers, and not selling the dollar to merchants.”
In contrast, the financial and economic advisor to Prime Minister Mohammed Shia al-Sudani, Mohammed Saleh, said in press statements today, Thursday, that “the difference between the two exchange rates in the market is basically stable for reasons related to controlling the sale of cash dollars from legal outlets to travelers in an organized manner and subject to a precise rule of compliance and auditing, in addition to the ability of the traveler to obtain other permitted amounts through payment cards in all their forms, and in sufficient and comfortable amounts at an exchange rate of 1320 dinars per dollar.”
Saleh added, “It is expected that the market, due to the end of the previous foreign transfer platform and the transition to new mechanisms to enhance foreign currency to meet the banks’ needs for foreign currency to finance foreign trade, was accompanied by a wave of misinformation, misunderstanding and confusion that was exploited by the parallel market and speculators for quick profit.”
The financial and economic advisor to the Prime Minister considered that this increase is “called a temporary market bubble that is built on unrealistic speculations and disappears over time, which requires attention to the phenomenon of exploitation and profiteering generated by false and baseless information.”
In early 2023, Iraq announced the adoption of an electronic platform to monitor the movement of dollar sales and money laundering operations, following warnings issued by the Federal Reserve (the US central bank), in addition to the Treasury Department punishing several local banks for their involvement in suspicious activities. A statement by the bank stated that “it was decided to expand the external transfer channels for local banks to include new currencies: the Jordanian dinar and the Saudi riyal, and to allow Iraqi banks to finance trade with Turkey in euros after it was previously limited to using it with European Union countries, in addition to transfers available in US dollars, Emirati dirhams, Chinese yuan and Indian rupees.”
Previous decisions by the US Treasury to impose sanctions on 18 Iraqi banks for financial dealings with Iran and others linked to money laundering operations caused a swift backlash inside Iraq, causing the value of the dinar to decline and depositors to flock to the sanctioned banks to withdraw their dollar deposits. With more than $113 billion in reserves in the United States, Iraq relies heavily on Washington’s goodwill to ensure that its oil revenues and cash are not subject to US sanctions.
Last October, the US government rejected an Iraqi request for $1 billion in cash from the Federal Reserve from Iraqi funds generated from oil revenues, due to its opposition to efforts to curb excessive dollar circulation and stop illicit cash flows to countries banned by the US Treasury.
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Iraq plans to reduce gas flaring to 20% next year
Iraq, the second largest oil producer in OPEC, intends to reduce the amount of gas it burns without economic benefit to about 20% during the next year, in an effort to meet the rising demand and reduce imports.
Bloomberg quoted the Undersecretary of the Ministry of Oil for Gas Affairs, Ezzat Saber Ismail, as saying that “the state used about 67% of the gas extracted from oil fields by the end of 2024, and that new projects in the south of the country, including the Total project, will help raise that level, and the state intends to stop burning gas completely by the end of 2029 or early next year.”
The Middle Eastern country, along with Russia, Iran and the United States, is one of the world’s largest gas flaring nations, a process that wastes fuel instead of extracting it and using it in sectors such as power generation.
Iraq was forced to resort to importing gas from neighboring Iran, a process that requires obtaining periodic exemptions from sanctions from Washington, and the current exemption expires next June, according to Ismail.
The Iraqi Ministry of Oil, Siemens Energy and Schlumberger signed a memorandum of understanding to invest in treating and stopping the burning of gas from oil fields.
Gas flaring has been a concern around the world for years, as the lack of infrastructure to transport the fuel has forced companies to burn off excess. While this is an environmental hazard, it is less severe than the alternative process called “venting,” in which methane emissions are released directly into the air.
Ismail also pointed out that “Iraq reduced gas flaring from 47% in 2021 to about 33% this year.”
Data from the World Bank’s Global Gas Flaring Tracker report, released earlier this year, showed that the amount of gas flared remained largely stable over the five years ending in 2023.
Iraq has failed to achieve its previous goals, which were to completely stop gas flaring by 2023.
By the end of next year, Iraq plans to add projects that will consume 290 billion cubic feet per day of gas extracted from oil fields in the south of the country, including the Total project consuming 50 million cubic feet from the Artawi field, which will rise to 300 million cubic feet by 2027, according to Ismail.
The Undersecretary added: “With regard to the Artawi project alone, the volume of investments will amount to about two billion dollars, and the integrated gas complex, which we describe as an accelerated investment, will be ready for operation by the end of next year.”
In addition, Iraq plans to build a liquefied natural gas import terminal at the southern port of Faw to meet fuel demand, and in January the country will send invitations, mostly to American companies, to compete to build the project, which will have a storage capacity of 300,000 cubic meters.
Ismail concluded that the country currently produces 3.122 billion cubic feet of gas per day, 1.048 billion cubic feet of which were flared on December 22.
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Al-Sudani’s advisor reassures via Shafaq News about the rise of the dollar: a temporary market bubble
Mazhar Mohammed Saleh, the financial and economic advisor to Prime Minister Mohammed Shia al-Sudani, commented on Thursday on the rise in the exchange rate of the US dollar against the Iraqi dinar in the local market for days.
Saleh told Shafaq News Agency, “The difference between the two exchange rates in the market is basically stable for reasons related to controlling the sale of cash dollars from legal outlets to travelers in an organized manner and subject to a precise rule of compliance and auditing, in addition to the ability of the traveler to obtain other permitted amounts through payment cards in all their forms, and in sufficient and comfortable amounts at an exchange rate of 1320 dinars per dollar.”
He added, “It is expected that the market, due to the end of the previous foreign transfer platform and the transition to new mechanisms for strengthening with foreign currency to meet the banks’ needs for foreign currency to finance foreign trade, was accompanied by a wave of misinformation, misunderstanding and confusion that was exploited by the parallel market and speculators for quick profit.”
He considered that this increase is “called a temporary market bubble that is built on unrealistic speculation and disappears over time, which requires attention to the phenomenon of exploitation and profiteering generated by false and baseless information.”
The dollar exchange rate in local markets is witnessing a gradual increase, while this morning it recorded 152,000 dinars for every 100 dollars in the two main stock exchanges of Al-Kifah and Al-Harithiya in Baghdad, and 151,400 dinars for every 100 dollars in Erbil, the capital of the Kurdistan Region.
Yesterday, Wednesday, the economic and financial expert, Abdul Rahman Al-Mashhadani, attributed the main reason for the rise in the dollar price to the promotion of stopping the platform, indicating that “this rumor that spread showed that foreign transfers would stop.”
He explained that “this rumor is false, as 97% of the transfers made through the window were transferred to banks that have correspondent banks in a way that enhances the balances. The Christmas holiday is also another reason for the demand for the dollar, as there is a lot of travel during these days.”
Al-Mashhadani expected that “the situation will stabilize and the dollar will return to its normal status after the holiday.”
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Iran: We have obtained Iraq’s approval to export goods through its territory to Kuwait
Iran confirmed on Wednesday that Iraq has allowed Iranian trucks to cross its territory into Kuwait, which will create a jump in Iranian exports and significantly reduce their transportation costs.
Amin Fartosi, a member of the board of directors of the Joint Chamber of Commerce between Iran and Kuwait, confirmed in a press statement: “Iraq has granted the Iranians permission to transit goods to Kuwait through its territory.”
“In trade between Iran and Kuwait, Iranian goods are usually shipped to the sea upon arrival at the port, and then transported by sea to their destination. In the land route, the advantage is that goods enter Iraq from the Shalamcheh crossing, and then enter Kuwaiti territory from the Safwan crossing. It takes about an hour to cross the distance between the Shalamcheh and Safwan crossings, which is much less time compared to the time it takes to transport from Iran to Kuwait by sea,” he added.
“Another advantage of land transportation of goods to Kuwait via Iraq is that the goods are loaded onto trucks at the source and then unloaded at the destination, without the need for unloading and loading again at the port. All these things help reduce the cost of transporting goods, and thus reduce the final cost of trade with Kuwait, making Iran’s exports to other countries via Kuwait more feasible,” he added.
The member of the board of directors of the Joint Chamber of Commerce between Iran and Kuwait continued: “This step is still in the stage of obtaining initial approval from Iraqi officials, and has not been implemented yet. So far, no export goods have been shipped through the Iraqi transit route to Kuwait. But if this route is implemented, it will bring about a major shift in trade between Iran and Kuwait.”
“Kuwaitis are demanding materials such as plaster, cement, stone, fruits and vegetables, and seafood from Iran, and for years these products have been exported to the Kuwaiti market via sea,” Fartosi pointed out. “However, the time to ship these goods to Kuwait via Iraq transit will be significantly shorter to the point that some food items may not even need refrigerated trucks.”
