DINAR REVALUATION UPDATE: Iraq's Move to Peg the Dinar to Petro-Dinar Instead of Petro-Dollar, 27 AUGUST

Iraq's Move to Peg the Dinar to Petro-Dinar Instead of Petro-Dollar

In a significant shift from traditional practices, Iraq is reportedly considering pegging the Iraqi dinar to a petro-dinar instead of the petro-dollar as of August 27, 2024. 1 This move is a response to US sanctions and the ongoing devaluation of the dinar, which has prompted the Iraqi government to explore alternative currencies for its oil trade.

Background and Motivation

The Finance Committee in the Iraqi parliament has called for the sale of oil in currencies other than the US dollar. 1 The motivation behind this decision is to counter US sanctions on the Iraqi banking system and stabilize the dinar's exchange rate. The US Treasury's restrictions, under the pretext of preventing money laundering, have led to sanctions on several Iraqi banks, causing volatility in the dinar's value. 1

Impact on the Iraqi Dinar

The shortage of dollars in Iraq has led to a devaluation of the Iraqi dinar, with the government imposing a ban on personal and business deals in US dollars.  2 This ban has affected the buying power of Iraqi citizens, who typically use dollars for large transactions due to the lack of trust in the dinar.

Currency Substitution Trend

Iraq's move towards the petro-dinar is part of a broader trend of currency substitution in the Middle East. 2 Countries like Saudi Arabia and the United Arab Emirates are also exploring alternatives to the US dollar, considering transactions in euros, Chinese yuan, and Indian rupees for their oil trade.

Prospects for the Petro-Dinar

Pegging the dinar to a petro-dinar could potentially stabilize Iraq's economy by reducing dependence on the US dollar and its associated sanctions. 1 This shift could also foster stronger economic ties with countries that have been affected by US sanctions, such as Iran.

Conclusion

Iraq's decision to move from the petro-dollar to the petro-dinar for its oil trade is a strategic move aimed at countering US sanctions and stabilizing the national currency. This shift reflects a broader trend in the Middle East towards currency substitution, with countries seeking to diversify their financial systems and reduce reliance on the US dollar.