Iraq’s foreign reserves fall 25% in a year as import funding strains grow

Iraq’s foreign reserves are draining faster, leaving a smaller cushion to pay for imports and support the dinar. Reserves excluding gold reached $57.3 billion in August 2026, their lowest level in records stretching back to 2021. The deterioration points to a widening mismatch between foreign-currency receipts and the dollars being used to meet domestic demand.

The slide began from $97.5 billion in September 2024. Brief recoveries have failed to arrest it, and reserves fell 17% between May and the latest reading. Although the final monthly decline was smaller than the preceding falls, the broader pace of depletion has intensified: the annual contraction has deepened for five consecutive months.

Oil is the likely starting point for explaining the pressure. Iraq relies heavily on crude exports for foreign currency and government revenue. Softer oil prices or constrained export volumes would reduce dollar inflows, while public wages, pensions and other spending sustain demand for imported goods. If spending adjusts more slowly than oil receipts, the central bank faces continuing dollar demand against a weaker replenishment stream.

That mechanism matters because government spending in dinars ultimately generates demand for foreign currency. Households buy imported food, medicines and appliances; construction companies need machinery and materials; traders seek dollars to settle suppliers’ bills. The central bank can bridge a shortfall by drawing on reserves, but persistent losses suggest that this bridge is becoming harder to maintain without changes to spending, dollar access or the exchange rate.

Banking frictions probably compound the pressure on access, even if they do not explain the reserve drain itself. Tighter checks on cross-border payments can delay legitimate trade transfers and push some demand towards informal currency markets. The central bank’s October notices asking traders to track pending remittances, alongside updated anti-money-laundering controls, point to continuing payment-processing concerns. Delayed transfers can disrupt imports even when official financing remains available.

The policy response came after the recorded depletion. On October 7, the official dollar rate was reset to 1,500 dinars. On October 15, travelers’ allowances were set at $2,000 every two months. Restricting access through that channel may conserve some dollars, but it cannot resolve a persistent gap between oil earnings and economy-wide foreign-currency demand. It may also divert unmet demand to the parallel market.

For importers, the immediate risk is less predictable access to dollars, with delays and higher financing costs likely to feed into retail prices. For households, especially those dependent on public salaries or pensions, that would squeeze purchasing power. The remaining reserve stock does not by itself establish how long imports can be funded: the import bill and usable liquidity also matter. Watch whether oil receipts recover, public spending moderates and trade transfers clear more smoothly. Without improvement, sustaining the official rate would likely require tighter dollar rationing or further adjustment.

Analysis by MENACodex. The reasons and effects discussed are our reading; every figure traces to official data.