By John Lee.
The gap between Iraq's official and parallel market exchange rates for the dinar widened from mid-December 2025 before stabilising in early March 2026, reflecting shifts in import demand and recent customs reforms.
Ahmed Tabaqchali, in his latest monthly report for Iraq Business News, says the divergence was driven by increased demand for US dollars in the parallel market, primarily from importers facing constraints in accessing foreign currency through official channels.
Two key factors contributed to this trend:
- Informal importers encountering difficulties in completing cross-border transfers at the official exchange rate
- Implementation of automated customs tariffs, including a shift from a flat-fee system to a value-based tariff structure, and linking official FX access to the customs platform
The value-based tariff system, originally legislated in 2010 but implemented at the start of 2026, increased costs on certain imports. In response, some importers turned to the parallel market to obtain dollars and mitigate higher tariff liabilities.
The spread between the two exchange rates continued to widen until early March, after which it moved sideways. This stabilisation may reflect market adjustment to the new customs system, government measures to ease implementation, or reduced import demand linked to regional disruptions, including constraints on trade flows through the Strait of Hormuz.
Despite ongoing regional conflict, there has been no indication of widespread precautionary demand for US dollars among Iraqi households, suggesting the absence of panic-driven capital flight.
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