He described it as a "stupid step".. British report: The Iraqi government created a cash crisis by paying its debts to Iran in dinars

[coorslite21]

 

 

 

 

 

 

How Iraq caused a currency crisis by paying Iran in dinars

Desperate to avoid power shortages, Kadhimi's government gave Iran billions of dinars. US sanctions however mean it can no longer access the dinars it needs

The Iraqi Central Bank has found it increasingly difficult to obtain its own currency (AFP/file photo)

By 

Suadad al-Salhy

 in 

Baghdad

Published date: 4 March 2023 09:27 UTC|Last update: 10 hours 16 mins ago

 

Iraq has worsened its financial crisis and contributed to its currency depreciating by paying its debts to Iran in Iraqi dinars, Iraqi officials told Middle East Eye.

Iraq’s currency has been struggling for months against the dollar since new restrictions were imposed by the US Federal Reserve on how the country's central bank trades the dollars it receives from oil sales.

The subsequent liquidity crisis has meant the government is failing to pay the salaries of millions of public servants, as well as pensions and payments to other beneficiaries of social welfare programmes.

Iraq has been one of the largest importers of Iranian goods over the last two decades, in particular gas, electricity, food, and construction materials.

Official trade exchange between the countries amounts to approximately $14bn.

Because of US sanctions imposed on Iran in 2018, Iraq has struggled to pay Iran for its purchases from 2019-2021.

At times, Iran has cut electricity and gas supplies in midsummer - when temperatures rise to 50 degrees Celsius - to pressure Iraq into paying these debts.

Iraqi protesters demonstrate against the dinar's slide in value against the US dollar in Baghdad, 3 February (Reuters)

 

 

 

 

 

Baghdad accrued a debt of more than $1.6bn for its Iranian gas and energy purchases alone between 2019-2021.

Sources suggest most or all of that debt has been settled, with the last payment going through in October 2022.

But rather than the dollars Iran received pre-sanctions, Baghdad has used Iraqi dinars instead, officials told MEE. 

The new payment system was worked out to avoid the anti-government protests that would have inevitably followed a cut in energy supplies in Iraq, they said.

Yet Iran was nonetheless able to turn these dinars into dollars - which are far more useful - using a currency auction the Central Bank of Iraq holds daily to convert the dollars it received from oil sales.

But since November, the US Federal Reserve, which holds the money Iraq makes from oil sales and delivers it to Baghdad by request, has imposed restrictions aimed at stopping Iran from accessing these dollars and combatting money laundering.

As MEE previously revealed, this led to parties including sanctioned states and criminals to find new ways to obtain dollars, such as the black market and dollar smuggling through Kurdistan.

'Paying Iranian debt in Iraqi dinars was not a calculated step. The financial crisis we are currently suffering from is caused by this stupid step'

- Senior Iraqi official

And with Iran and others now avoiding changing dinars through the auction, Iraq has been unable to trade its dollars for the local currency it requires to meet its needs.

All this continues to place pressure on the dinar.

In January, its black market price rose to 1,700 to the dollar from 1,480 in October.

Traders have described the fluctuations as “terrifying”, saying there is huge competition for dollars with speculators willing to pay “any price”. Meanwhile, the prices of consumer goods continue to rise.

The Iraqi government has introduced various measures to control the exchange rate, including reducing the official rate to 1,300 dinars. Though the black market rate has dropped to around 1,500 dinars, it remains highly volatile.

The impact of handing Iran large amounts of dinars - that it is now unable to trade for dollars - is still being felt.

"Paying Iranian debt in Iraqi dinars was not a calculated step. The financial crisis we are currently suffering from is caused by this stupid step," a senior Iraqi official told MEE.

 

"Iran obtained huge amounts of the Iraqi currency and it desperately needs the US dollar, so what did the decision-makers think that Iran would do with this currency? Were they thinking that Iran would distribute them as gifts to the Iraqis, or they would invest them in the Iraqi market?" he asked.

"Their thinking was limited to achieving quick, imaginary successes to prove that they are the most capable of dealing with Iraq's intractable problems, so they took us out of a well to throw us into a sea.”

Intractable problems and patchwork solutions  

Despite having one of the largest oil reserves in the world, Iraq has suffered from severe energy shortages since the 1990s, due to conflicts, sanctions, mismanagement, and a failure to develop infrastructure.

In recent summers, the lack of power, drinking water, and other essential services has prompted mass demonstrations, especially in the south.

To patch over the supply issues, Iraq has had to import energy and gas - much of it from Iran next door.

Officially, Iraq spends around $900m a month on Iranian goods, according to Iranian officials. Fifty percent of that is electricity and gas.

Aware of Iraq’s precarious situation, Washington has exempted Iraq from its sanctions on Iran, but problems paying for the purchases arose from day one.

The United States only agreed to waive sanctions if Iraq placed the funds in the Trade Bank of Iraq with the understanding that it would be used later by Iran to pay for food and medicine.

US efforts to stop Iraqi money laundering sparks huge cross-border dollar smuggling

Read More »

"However, this was not enough for Iran, as the account's movement is subject to American control," an Iraqi official said.

Iran instead demanded another way to receive its money and used threats to the energy supply as a way to pressure Baghdad into giving it what it wants.

In October 2019, the energy shortages became an existential crisis for Iraqi authorities, when huge demonstrations rocked various central and southern provinces, as well as Baghdad.

Adel Abdul-Mahdi’s government and some Iran-backed armed factions waged a bloody crackdown on the protests, which had significant backing from the supporters of Shia cleric Muqtada al-Sadr.

The ensuing bloodbath forced the collapse of Abdul-Mahdi’s administration and early elections.

The next prime minister, ex-intelligence chief Mustafa al-Kadhimi, and his backer, Sadr, sought to find quick solutions to the intractable problems that Iraq suffers from, including the Iranian debt, officials told MEE.

Later, in April 2022, when Iraq was swept up in a political vacuum following the inconclusive elections the previous October, the Sadrists suggested an emergency law to act as a mini-budget. 

The debt to Iran that had been accumulated since 2019 was one of the most pressing issues for Kadhimi’s government at the time.

“Sadr had to find a way out for his ally," one of Kadhimi’s former advisors told MEE.

At the same time, Sadr wanted to present "a gesture of goodwill to the Iranians to prove that his project does not target them or threaten their interests," the adviser said.

The law allocated four trillion Iraqi dinars (about $3bn) "to pay off the electricity ministry’s foreign debt and the debts for the purchase of gas and energy".

That June, parliament approved the law and the Iraqi government started to pay what it owed directly to Iranians in dinars. The last payment was in October, officials said.

A man stands holding a sign reading "depreciate the rate of the dollar, or else..!" during a protest outside the Central Bank in Baghdad (AFP)

 

 

 

 

 

The exact amounts paid by the Kadhimi government to Iran in dinars were not disclosed, but it was not the first time this had happened.

In February 2019, the Central Bank of Iraq concluded an agreement with the Central Bank of Iran, allowing customers of both banks to open accounts in the two countries and conduct their banking transactions in dinars and euros. 

The Iraqi Central bank said at the time this was done “to remove obstacles to paying Iraq’s debts related to gas and electricity exports”.

An Iraqi politician close to Tehran told MEE he believed Washington predicted the strain on Iraq’s currency when it allowed Baghdad to pay Iran in dinars.

“If they didn't, then they missed a lot," he said.

“The Iranians are very smart and they are investing in all the details that serve their goals. They were clear from the beginning. They said if you could not pay in dollars, pay in dinars and leave it to us,” he added.

“It is not their problem if their rival is arrogant and treats others as helpless, and they will follow their own paths."

Middle East Eye delivers independent and unrivalled coverage and analysis of the Middle East, North Africa and beyond. To learn more about republishing this content and the associated fees, please fill out this form. More about MEE can be found here.

 

 

Middle East Eye          ISSN 2634-2456                     

[Fairways&Greens]

Iraq needs energy independence. Develop systems to deliver gas and electricity and remove dependence on Iran. 

[flyguy2323]

1 hour ago, Fairways&Greens said:

Iraq needs energy independence. Develop systems to deliver gas and electricity and remove dependence on Iran. 

So does the USA

[horsesoldier]

Paying Iran in Dinars a stupid step:...perhaps a catastrophic error in judgment or ALL by design ???

Knowing what we've seen the last 20 years im going with by design.

Agreed the opinion piece that it's a stupid step but who's been the driving force all this time? Ole Tater Head. 

 

[3n1]

5 hours ago, Fairways&Greens said:

Iraq needs energy independence. Develop systems to deliver gas and electricity and remove dependence on Iran. 

 

I vote fairways and greens for top energy planning minister for iraq ... all in favor ✌️

[yota691]

He described it as a "stupid step".. British report: The Iraqi government created a cash crisis by paying its debts to Iran in dinars

 

2023-03-04 11:59

 

 

 

Shafaq News/ The British "Middle East Eye" website quoted, on Saturday, Iraqi officials as saying that Iraq exacerbated its financial crisis and contributed to the depreciation of its national currency, by paying its debts to Iran in the Iraqi dinar, which has been suffering for months against the dollar after imposing the Reserve Board The US Federal Reserve, the new restrictions on how the Central Bank of Iraq deals with oil revenue dollars.

 

 

 

The British report, translated by Shafaq News Agency, stated that a liquidity crisis appeared later, as the government failed to pay the salaries of millions of public sector employees, retirement allowances and benefits to beneficiaries of social welfare programmes.

The report indicated that Iraq was one of the largest importers of Iranian goods during the past two decades, especially gas, electricity, foodstuffs and building materials, as the volume of trade exchange between the two countries amounted to about $14 billion.

 

US sanctions

 

And the report continued, because of the US sanctions imposed on Iran in 2018, Iraq faced difficulties in paying the financial dues owed to Iran between the years 2019-2021.

The report pointed out that Iran sometimes cut off electricity and gas supplies in the middle of the summer, to pressure Iraq to pay these debts, which amounted to more than $1.6 billion from gas and energy purchases alone between 2019 and 2021.

 

The report quoted informed sources as saying that most or all of this debt has been settled, with the final payment due in October 2022.

 

Iraqi dinar instead of the dollar

 

And the report continued that instead of the payments in dollars that Iran was receiving before the sanctions were imposed on it, Baghdad paid its debts in Iraqi dinars.

The report quoted Iraqi officials as saying that the new payment system was put in place with the aim of avoiding anti-government demonstrations that would have erupted inevitably due to the reduction of electricity service in Iraq.

 

The report indicated that Iran was able to convert these dinars into dollars, through the use of the currency auction, which is supervised by the Central Bank of Iraq.

 

The report added that since last November, the US Federal Reserve, which retains the money Iraq earns from oil sales and transfers it to Baghdad, imposed new restrictions aimed at preventing Iran from accessing these dollars and combating money laundering.

 

The British website mentioned that it had previously indicated that parties, including sanctioned countries and criminals, had discovered new ways to obtain dollars, such as the black market and smuggling dollars through the Kurdistan Region.

 

Additional pressure on the dinar

 

Now, the report says that with Iran and others avoiding the exchange of dinars through the auction, Iraq has become unable to exchange its dollars for the dinars it needs to meet its needs, which put additional pressure on the dinar.

 

And after the report indicated that the price of the dinar on the black market rose last January, from 1480 dinars to 1700 dinars per dollar in October 2022, money changers were quoted as saying that these fluctuations are “terrifying,” explaining that there is great competition for The dollar with speculators willing to pay "any price."

 

At the same time, consumer prices continued to rise, the report added.

 

Reducing the price of the dollar

 

The report pointed out that the Iraqi government has taken a set of measures in order to control the exchange rate, including reducing the official rate to 1,300 dinars, and that despite the decrease in the price on the black market to about 1,500 dinars, it is still fluctuating sharply.

 

The report considered that the effects of Iran's handing over large sums of dinars while it - i.e. Tehran - is not able to trade in dollars, its effects are still felt.

 

The report quoted a senior Iraqi official as saying, "Paying the Iraqi debt to Iran in Iraqi dinars was not a calculated step. The financial crisis that we are suffering from at the present time is caused by this stupid step."

 

The Iraqi official wondered, "What do the decision-makers think about what Iran will do with these huge quantities of the Iraqi currency when it is in dire need of the US dollar? Would it have distributed them as gifts to the Iraqis, or would it have invested them in the Iraqi market?"

 

He added, "Their thinking was limited to achieving quick imaginary successes to prove that they are the most capable of dealing with the intractable problems of Iraq, and for this, they took us out of the well and threw us into the sea."

 

Money for food and medicine

 

In addition, the report indicated that Iraq officially spends about $900 million a month on importing Iranian goods, according to Iranian officials, and that 50% of that is in return for imports related to electricity and gas from Iran.

 

He added that Washington was aware of the unstable situation in Iraq, and that is why it exempted Iraq from its sanctions on Iran, but that from the first day, problems arose related to how to pay the purchase price.

 

He pointed out that the United States agreed to waive the sanctions only if Iraq deposited money in the Iraqi Trade Bank on the grounds that Iran would later use it to pay for food and medicine.

 

According to an Iraqi official, "This was not enough for Iran, as the account's movement is under American control."

 

And the report added that instead, Iran demanded another way to receive its money, and used threats to energy supplies as a means of pressure on Baghdad in order to obtain what it wanted.

 

After referring to the demonstrations of October 2019, and how the energy shortage turned into an existential crisis for the Iraqi authorities, and then the advent of Mustafa Al-Kazemi to head the government, the report said that Al-Kazemi sought to find quick solutions to the intractable problems that Iraq suffers from, including the debt issue. Iranian.

 

The report added that in April 2022, when the political vacuum prevailed after the October elections, the Sadrists proposed the emergency law to serve as a mini-budget, noting that the debts owed to Iran, which had accumulated since 2019, were one of the most pressing issues for the Al-Kazemi government in that. the time.

 

The report quoted one of Al-Kazemi's former advisors as saying that "Al-Sadr had to find a way out for his Al-Kazemi ally."

 

He continued, saying that at the same time, al-Sadr wanted to present "a gesture of goodwill to the Iranians to prove that his project does not target them and does not threaten their interests," noting that the emergency law allocated 4 trillion Iraqi dinars (about $3 billion) in order to pay off the external debt of the Ministry of Electricity. And debts for the purchase of gas and energy.

 

The report added that in June Parliament approved the law and the government began paying what it owes directly to the Iranians in dinars, and that the last payment was in October, according to what officials said. However, the exact amounts paid by the Al-Kazemi government to Iran in dinars were not disclosed, but it was not the first time that this happened.

 

Euro instead of dollars

 

The report indicated that in February 2019, the Central Bank of Iraq reached an agreement with the Central Bank of Iran, allowing customers of the two banks to open accounts in the two countries and conduct their banking transactions in dinars and euros, as the Central Bank of Iraq stated at the time that this was done in order to "remove Obstacles to paying Iraq's debts related to gas and electricity exports.

The report quoted an Iraqi politician close to Tehran as saying that Washington was expecting pressure on the Iraqi currency when it allowed Baghdad to pay dinars to Iran.

 

He continued, saying, "The Iranians are very smart and invest in every detail that serves their goals. They were clear from the beginning, and they said if you cannot pay in dollars, pay in dinars."

 

"It is not their problem if their American opponent is arrogant and treats others as helpless, and they will follow their own path," he added.

 

Translation: Shafak News Agency

[rvmydinar]

35 minutes ago, yota691 said:

He described it as a "stupid step".. British report: The Iraqi government created a cash crisis by paying its debts to Iran in dinars

There is one way for Iraqi government to pay debts to Iran in dinars : 

1.) Delete 3 zeros for Iraq dinar and delete       4 zeros for Iranian rial.

2.) Release a new lower denoms for Iraq            dinar and Iranian rial.

3.) Revalue Iraq dinar and Iranian rial                  against the dollar at least 1 IQD : 1 RIAL        : 1 USD. So this is a win win solution              for both sides and dinar & rial holders,          too

in conclusion , problem solved. So , what are you waiting for ,GOI and CBI?

[Laid Back]

“He continued, saying that at the same time, al-Sadr wanted to present "a gesture of goodwill to the Iranians to prove that his project does not target them and does not threaten their interests," noting that the emergency law allocated 4 trillion Iraqi dinars (about $3 billion) in order to pay off the external debt of the Ministry of Electricity. And debts for the purchase of gas and energy.

 

The report added that in June Parliament approved the law and the government began paying what it owes directly to the Iranians in dinars, and that the last payment was in October, according to what officials said. However, the exact amounts paid by the Al-Kazemi government to Iran in dinars were not disclosed, but it was not the first time that this happened.”

 

If Iran was paid in Dinars by Iraq, I don’t think the US wants Iran to benefit from an Iraqi Dinar Revaluation. 

We wait and see.

[Officiallytook]

" its Harder to get it out of the auctions now and street venders, dayumn one last hoooraaahhhh"

[Officiallytook]

Basically letting us know who's been getting the money all along

[Carrello]

 

 

"Iran obtained huge amounts of the Iraqi currency and it desperately needs the US dollar, so what did the decision-makers think that Iran would do with this currency?

 

Iran can't afford to leave IQD sitting in an account. They need exchangeable currency, not IQD. Considering the time and interest Germany, Canada, Britain, USA, etc., have invested in Iraq for many reasons, and are aware the IQD revaluation, they would have anticipated Iraq paying Iran in IQD. This is not a new idea as we have seen it written about before. I would think many countries, possibly their intelligent agencies, would make offers through the Black Market or straight forward offers to Iran for the IQD in order to have the IQD for foreign reserves, and most importantly, to keep it from Iran in anticipation of an RV. "They" know more than we can guess at.

 

 

[6ly410]