Iraq dinar prospects

[Woldopep]

Iraqi Dinar Prospects: Reality Check After Six Months of Trump

29th July 2025  in Iraq Banking & Finance News

By Guest Blogger. Any opinions expressed are those of the author(s), and do not necessarily reflect the views of Iraq Business News.

Iraqi Dinar Prospects: Reality Check After Six Months of Trump

Six months into Donald Trump's return to the presidency, the Iraqi dinar finds itself at a crossroads between economic fundamentals and persistent speculation. Whilst the currency's boosters continue to proclaim imminent revaluations, the reality on the ground tells a rather different story-one of mounting pressures on Iraq's economy that suggest further weakening, not strengthening, of the dinar.

The Numbers Don't Lie

Market projections indicate potential slight depreciation, with the exchange rate possibly reaching around 1,318 IQD per USD by the end of 2025. This represents a continued weakening from current levels, reflecting the deteriorating economic conditions that have emerged during Trump's first six months in office.

More optimistic forecasts suggest modest improvements, with the USD/IQD exchange rate might improve from 1,276.640 in March 2025 to 1,217.448 by December 2025, though even these projections show only marginal strengthening that would hardly satisfy those expecting dramatic revaluations.

The gulf between these professional forecasts and the expectations of dinar enthusiasts could not be starker. More than half of respondents expected the Iraqi dinar to revalue by at least 1,000x in the first 100 days of Trump's term -- a prediction that has been thoroughly debunked by events.

Economic Fundamentals Under Pressure

The fundamental drivers of currency value paint a concerning picture for the dinar's prospects. The current account is expected to weaken considerably in 2025 primarily due to declining oil export revenues. The deterioration in the external position is projected to weigh on foreign reserves.

Iraq's foreign currency reserves, whilst still substantial, are showing signs of strain. Iraq's foreign currency reserves are sufficient to finance 13 months of imports, despite a recent decline in coverage, according to the Central Bank. The Central Bank of Iraq (CBI) revealed that the country's foreign exchange reserves declined in May 2025, marking a concerning trend as oil revenues continue to fall.

The IMF's assessment is particularly sobering, noting that Iraq's vulnerabilities have increased in recent years due to a large fiscal expansion, precisely at a time when the government's main revenue source-oil exports-faces sustained pressure from both price declines and geopolitical disruptions.

Trump's Policies: A Double-Edged Sword

Leading Iraqi economists have warned that Trump's policies could actively harm the dinar. A leading Iraqi economist has predicted that US President Donald Trump's pressure to reduce oil prices will harm the Iraqi economy, and could lead to a devaluation of the Iraqi dinar.

This assessment reflects the reality that Iraq remains overwhelmingly dependent on oil revenues, which constitute roughly 90% of government income. Any sustained pressure on oil prices-whether through Trump's energy policies, sanctions on Iran affecting regional markets, or broader geopolitical tensions-directly undermines the fiscal position that underpins the dinar's stability.

Trump's renewed "maximum pressure" campaign against Iran has created additional complications. The removal of sanctions waivers that previously allowed Iraq to import Iranian energy has forced Baghdad to seek more expensive alternatives, further straining the government's finances and potentially requiring drawdowns of foreign reserves that support the dinar's exchange rate.

The Revaluation Delusion Persists

Despite six months of evidence contradicting their expectations, dinar revaluation theorists show little sign of abandoning their beliefs. The lack of any statement, policy, or indication from Trump regarding the Iraqi dinar has been met with increasingly creative explanations from supporters of the theory.

The fundamental misunderstanding underlying these expectations appears to be the belief that currency revaluations are political decisions that presidents can simply decree, rather than market-driven responses to economic fundamentals. The comparison some make to Kuwait's dinar post-liberation ignores the vastly different economic circumstances and structural reforms that accompanied that currency's strengthening.

Looking Forward: Modest Hopes, Harsh Realities

The most optimistic realistic scenario for the dinar involves gradual stabilisation rather than dramatic appreciation. This would require Iraq to successfully diversify its energy imports away from Iran, maintain political stability, and weather the current period of reduced oil revenues without excessive drawdowns of foreign reserves.

However, several factors work against such optimism:

Fiscal Pressures: With oil prices well below budgeted assumptions and production facing constraints, Iraq's government faces mounting pressure to either cut spending or increase borrowing-both of which could weaken confidence in the dinar.

Regional Instability: Trump's unpredictable approach to Middle Eastern policy creates ongoing uncertainty that typically undermines emerging market currencies like the dinar.

Structural Dependencies: Iraq's overwhelming reliance on oil exports leaves it vulnerable to external shocks, whether from market conditions, sanctions, or regional conflicts.

The Reality Check

For those holding Iraqi dinars in expectation of massive revaluations, the first six months of Trump's presidency have delivered a harsh reality check. Professional market forecasts suggest, at best, modest movements in the exchange rate-nothing approaching the transformative gains that speculators expect.

The economic fundamentals that determine currency values-fiscal position, foreign reserves, trade balance, and political stability-all point towards continued pressure on the dinar rather than the dramatic strengthening that revaluation theorists predict.

Iraq's path to currency stability lies not in presidential proclamations or speculative theories, but in the hard work of economic diversification, institutional reform, and fiscal discipline. Until these fundamentals improve, the dinar's prospects remain constrained by the same structural challenges that have defined Iraq's economy for decades.

The lesson from Trump's first six months is clear: currencies reflect economic realities, not political fantasies. The Iraqi dinar's future depends on Iraq's economic performance, not on the whims of foreign presidents or the hopes of speculative investors.

[3n1]

it always strikes me as odd that the dinar forecasters that write these blogs never mention how the iqd went from one of the strongest currencies to being a blacklist devalued currency almost over night after saddam was dethroned and america flooded iraq with usd to replace the iqd .. whats up with all that anyways 🤣