Iraq Economic News And Points To Ponder Sunday Morning 4-5-26
How Are The Central Bank's Foreign Reserves Distributed?
Banks Economy News – Baghdad Economic expert Nabil Al-Marsoumi revealed the distribution of foreign reserves of the Central Bank of Iraq at the end of 2025, where the total foreign reserves amounted to $97.432 billion.
According to the distribution, $24.221 billion of the reserve was allocated to gold held at the London Gold House, while the volume of US Treasury bonds amounted to $42 billion.
The remaining $31.211 billion of the reserve was divided among several financial entities, with $1.466 billion being held in the vaults of the Central Bank of Iraq, while the remainder was deposited in the Bank of France, the Bank of England, the US Federal Reserve, the People’s Bank of China, along with other central banks and international banks. https://www.economy-news.net/content.php?id=67529
Foreign Reserves: Between Their Sterilizing Role And Budgetary Pressures In Light Of The Halt In Oil Revenues
Economy News – Baghdad Dr. Haitham Hamid Mutlaq Al-Mansour In times of major crises, an economy is tested not only in its capacity for growth but also in its ability to survive without its primary resources. Iraq, being a country reliant on a single resource, finds itself in a vulnerable position to any shock to its oil sector.
Oil is the backbone of public finances and the cornerstone of financial and monetary stability. Therefore, a halt in oil exports, even temporarily, is not a far-fetched hypothetical scenario but a genuine test of the limits of the existing economic model.
With Iraqi oil exports remaining suspended for an extended period, the economy is not merely facing a temporary financial crisis, but rather a disruption to its export structure.
As a rentier economy, Iraq relies almost entirely on dollar inflows from oil exports, which under normal circumstances range between $90 and $100 billion annually, or approximately $7–8 billion monthly at average price and production levels. These inflows not only constitute budget revenues but also form the foundation upon which the value of the local currency and the stability of the entire monetary system are built.
With the continued cessation of this revenue stream, the Ministry of Finance found itself facing a severe funding gap.
Assuming that annual public spending is approximately 150 trillion Iraqi dinars (around $100 billion), and that at least 70–75% of this goes to salaries and pensions, the halt in oil revenues effectively means the loss of nearly 75% of funding sources. At best, the government may be unable to cover more than 20–25% of its expenditures through limited alternative sources, such as tanker exports or fees and taxes.
In this case, resorting to discounting remittances at the central bank becomes almost inevitable. If the government, for example, needs monthly financing of around 8–10 trillion dinars to cover salaries and current expenditures, this amount will be created in cash through the expansion of the central bank's liabilities.
In just six months, this financing could reach 50–60trillion dinars through new currency issuance, a figure equivalent to a significant percentage of the existing money supply.
However, this monetary expansion is not matched by any real inflow of dollars. Under normal circumstances, oil revenues would exceed $100 billion, which would be converted into foreign reserves used to cover imports and maintain exchange rate stability.
In the current situation, however, the central bank's foreign assets begin to erode. If reserves are around $100 billion and monthly demand for dollars for imports ranges between $5 and $6 billion, reserves could be depleted by $60 to $70 billion in just one year if the same demand pattern continues.
The paradox is that continuing to pay salaries, which requires injecting large amounts of dinars, will increase demand for imported goods, thus increasing pressure on the dollar. This means that every additional trillion dinars injected into the economy is very likely to be partially converted into demand for foreign currency, accelerating the depletion of reserves.
As net foreign assets decline from comfortable levels (e.g., $100 billion) to critical levels (less than $30–40 billion), confidence in the dinar begins to erode rapidly.
At this stage, the negative impact on the exchange rate becomes clearly apparent. If the official rate is around 1,320 dinars to the dollar, it could rise in the parallel market to 1,500-2,000 dinars within months, and with continued pressure, it could reach much higher levels, especially with the widening gap between supply and demand.
This increase will directly affect inflation levels, which could exceed 30-50% annually, with rising prices for imported basic commodities.
What is happening here is a transformation in the nature of the monetary system. The general budget, which was based on real dollar revenues, is now financed by issuing domestic currency backed by domestic financial assets, while the central bank's balance sheet is shifting from holding foreign assets to accumulating domestic debt owed by state-owned banks.
Within a short period, the proportion of domestic assets in the central bank's balance sheet could rise from marginal levels to more than 50% of total assets, while foreign assets decline sharply.
The ultimate result of this trajectory is that continued spending, despite its social necessity, becomes an accelerating factor for the crisis rather than a mitigating one. Every additional month of monetary financing without oil revenue corresponds to a decrease in reserves, an increase in the money supply, and a deterioration in the exchange rate.
As reserves approach critical levels insufficient to cover more than three to four months of imports, the economy enters a phase of loss of control, where the options become limited to a sharp reduction in spending, the imposition of strict controls on transfers, or accepting high levels of inflation.
It becomes clear that the problem lies not in a lack of tools, but in the limitations of the economic model itself. When an economy suddenly loses a resource that provides it with approximately $100 billion annually, it cannot compensate for this loss through issuing currency or internal instruments.
Therefore, what Iraq faces in such a scenario is not merely a liquidity crisis, but a crisis in the very foundation of monetary value generation.
Within this framework, the dinar may not represent genuine wealth but rather an expression of internal obligation, and the stability of the monetary system becomes contingent upon a limited, time-bound capacity to utilize remaining reserves.https://www.economy-news.net/content.php?id=67516
Iraq Will Be Among The Top 5 Arab Economies In 2026.
Money and Business Economy News – Baghdad Iraq ranked highly in the list of the largest Arab economies for 2026, according to the purchasing power parity criterion, based on the latest data from the International Monetary Fund (IMF).
Iraq came in fifth place in the Arab world, recording about $739.1 billion, reflecting a remarkable growth in its economic capabilities and its position among the countries of the region.
Saudi Arabia topped the list with an economy of $2.84 trillion, followed by Egypt with $2.53 trillion, then the UAE with about $1 trillion, and Algeria with $915.8 billion.
Following Iraq were Morocco with an economy of $457.5 billion, Qatar with $410.6 billion, Kuwait with $285.9 billion, Oman with $245.9 billion, and Tunisia with $193.6 billion.
Jordan recorded $138 billion, Sudan $135.9 billion, Libya $132.8 billion, Bahrain $118.1 billion, and Yemen came in last with $71.2 billion.
It is worth noting that the purchasing power parity index is a strategic measure that reflects the actual ability of the economy to purchase goods and services locally, away from the fluctuations of global exchange rates. https://www.economy-news.net/content.php?id=67534
Iraqi Oil Exports Via The Basra-Shalamcheh Railway Line Amidst The Regional War
Economy News — Baghdad By Karim Al-Araji, expert and consultant in international economicsWith the escalation of the conflict between the United States and Iran in the Persian Gulf and the Strait of Hormuz, Iraq's foreign trade has been disrupted, and the need to diversify trade routes has become even more apparent to the Iraqi people and government.
The Basra-Shalamcheh railway, being the least expensive and shortest route, could enable Iraq to export its oil to China, bypassing the volatile region of the Persian Gulf and the Strait of Hormuz.
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Throughout history, wars have been a major impediment to international trade, and all nations have sought to avoid areas of military tension.
Indeed, wars, in addition to the destruction and insecurity they cause for the warring parties, also lead, depending on the geopolitical location of those parties, to insecurity in international trade routes. This has always been one of the most significant challenges to sustainable trade.
Last month, following the assassination of Ayatollah Khamenei, the Supreme Leader of the Islamic Revolution in Iran, by the US and Israeli regimes, Iranian officials, as previously promised, declared that their response would not be limited to Israel but would encompass the entire West Asia region (the Middle East).
Several months prior, the Iranians had warned Israel and the US that if they repeated their aggression against Iranian territory, they would target not only the occupied Palestinian territories (Israel) but also all US bases and interests in the region.
They further stated they would not allow any ships to pass through the Strait of Hormuz if their destination or purpose was linked to the interests of the US and its allies in a military attack against Iran.
Accordingly, after the commencement of the US and Israeli aggression against Iran, and in accordance with their earlier promise, the Strait of Hormuz, through which more than 20% of the world's energy supply passes and which plays a crucial role in securing global energy resources, was closed by the Iranian navy.
Only a limited number of ships were permitted to pass, and any ships or oiltankers attempting to pass without authorization were targeted by Iranian missiles.
Under these circumstances, Iraq is among the countries whose trade, exports, and imports have been severely jeopardized.
Normally, over 95% of its oil exports and a significant portion of its imports transit through the Sea of Oman and the Strait of Hormuz.
Consequently, the country's exports and imports have faced numerous challenges, and Iraq's trade with China has been significantly impacted.
This comes at a time when China is one of Iraq's most important trading partners, with bilateral trade exceeding $56 billion in 2024, and in recent years purchasing an average of 25% of Iraq's total oil. Furthermore, Iran has also declared that even if the war ends, transit through the Strait of Hormuz will not return to its previous state, posing risks to Iraqi trade.
Therefore, under these circumstances, establishing alternative land routes, particularly railways, is essential for the Iraqi government and people to break free from complete dependence on the volatile route through the Arabian Gulf and to continue exporting oil—the country's lifeline—to key partners like China.
This is an area in which several neighboring countries, such as Iran, Turkey, and even Saudi Arabia, have invested heavily in recent years.
Currently, the only way to connect Iraq by rail to China is through the Basra-Shalamcheh railway line with Iran.
This line requires only the construction of 33 kilometers of track and the completion of an 800-meter-long movable bridge over the Shatt al-Arab waterway; secondly, this line is located near Iraq's largest oil reserves.
The Basra-Shalamcheh railway project has been on the Iranian side's agenda for years, and Iranian officials are determined to complete it as soon as possible.
In this context, Iranian President Pezeshkian, during his meeting with Iraqi President Abdul Latif Rashid, considered linking the railway lines between the two countries a necessary step and deemed the completion of the Basra-Shalamcheh railway project a top priority for Iran.
However, the Iraqi government should not be content with this project or with rail links with Iran alone; it must also establish new trade routes through agreements with its other neighbors.
Given the clear importance of diversifying trade routes, the Iraqi government must complete the remaining 33 kilometers of the Basra-Shalamcheh railway line, a commitment it has made in this project, as quickly as possible, and utilize this route as an emergency trade artery, particularly for its trade with China. https://www.economy-news.net/content.php?id=67489