ERBIL, Kurdistan Region - Iraq’s foreign currency reserves are declining month by month. In the first two months of this year alone, they have dropped by 4.5 trillion dinars (around $3.43 billion at the current exchange rate), and over the past four years, they have decreased by 14.2 trillion dinars. However, the extent of any further decline or increase this year depends on the situation in the Strait of Hormuz, gold prices, and operation and investment expenditures.
According to data from the Central Bank of Iraq (CBI), from January 29 to March 19, Iraq’s foreign reserves fell from 131 trillion dinars to 126.4 trillion dinars. This means that the amount reduced from CBI’s reserves over those 59 days was 4.5 trillion dinars.
Short-term fluctuations in Iraq’s reserves are mainly linked to oil prices and gold prices. However, the changes over the past four years are largely due to increased spending, especially operational, compared to revenues.
Currently, with the ceasefire phase of the US-Israel conflict with Iran, the situation in the Strait of Hormuz poses another risk to Iraq’s revenues and directly affects its foreign reserves. Oil revenues transferred to the Ministry of Finance and then to CBI cover only about one-quarter of the minimum monthly spending or one-eighth of the maximum monthly spending. In either case, Iraq must rely on its reserves to cover expenses.
It can be said that the overall direction of Iraq’s reserves in 2026 depends more on the situation in the Strait of Hormuz than on oil or gold prices.
Changes in Iraq’s foreign reserves over two decades
CBI’s foreign reserves consist of three types: foreign currencies (dollar, pound, and euro), financial securities, and gold. Most of these reserves are financial securities, and nearly one-third is gold, forming about 28 percent of the total reserves. Therefore, changes in the price of an ounce of gold affect Iraq’s total reserves in a similar way to oil prices.
Half of the drop in Iraq’s reserves over the past two months was due to the decline in gold prices. For example, in February 2026, the price of an ounce of gold was $5,019, and the total value of Iraq’s gold reserves was 36.9 trillion dinars. When the gold price dropped to $4,862 in March, the value of Iraq’s gold reserves fell to 34.1 trillion dinars.
Over the years, Iraq’s gold reserves have steadily increased. In the past two decades, their value rose from 1 trillion dinars to over 30 trillion dinars, reaching 174.6 tons, especially growing in 2025 due to rising gold prices. Additionally, in 2024, gold managed to offset part of the overall decline in Iraq’s foreign reserves and helped hide the gap caused by reduced revenues and increased spending.
Oil prices and export volumes have been the main drivers of Iraq’s reserves from 2005 to 2025: When oil prices dropped in 2016 and 2020, reserves declined. When oil prices rose in 2022, reserves increased.
In addition to oil and gold prices, reserves are strongly influenced by government fiscal policy - especially spending levels, investment allocation, and the exchange rate of the Iraqi dinar against the US dollar. This is critical since about 90 percent of Iraq’s revenue comes from oil, which is sold in dollars.
2015–2025: Rising spending and oil dependency
By the end of 2025, total printed Iraqi currency reached 99.7 trillion dinars (over $76 billion), with 92.5 trillion outside banks and 7.2 trillion inside banks. Deposits at the Central Bank stood at 27.6 trillion dinars on January 19 but fell to 21.4 trillion dinars by March 12 - a decrease of 6.2 trillion dinars.
This decline in both cash and reserves is largely due to the gap between revenues and expenditures. The deficit in 2024 was 9.7 trillion dinars, while in 2025 it was 17 trillion dinars.
The conflict involving the US, Israel, and Iran presents another major challenge for Iraq’s oil exports. Due to disruptions, Iraq has only been able to export about one-seventh of its pre-war levels - meaning revenues are insufficient even for basic expenses.
For example, on April 13, 2026, Iraq’s Ministry of Oil reported that March exports were 18.6 million barrels, generating $1.96 billion - the lowest level in two decades.
In reality, this monthly oil revenue covers only about one-quarter of Iraq’s normal monthly spending of around 10 trillion dinars. In high-spending months such as July, when spending reached 20 trillion dinars, Iraq would need to withdraw up to 17.5 trillion dinars from reserves to cover the shortfall.
Another clear example of rising spending and declining non-oil revenues is that in January 2015 total spending was 2.6 trillion dinars, with only 69 billion for investment, whereas in January 2025 total spending reached 8.8 trillion dinars, with 8.2 trillion for operational expenses and only 613 billion for investment. This shows spending has quadrupled, mainly for operations rather than investment.
On the revenue side, in January 2015, Iraq earned $6.4 billion - $3.6 billion from oil and $2.7 billion from non-oil sources - even while one-third of the country was occupied and it was fighting the Islamic State (ISIS). A decade later, total revenue reached about 8 trillion dinars, of which 7.3 trillion came from oil and only 692 billion from non-oil sources. Therefore, any decrease in oil revenue leads directly to a decrease in foreign reserves, and vice versa.
Finally, in the past, Iraq’s reserves were mainly affected by oil and gold prices. But after the recent regional conflict, oil production and exports themselves have become major factors. Therefore, Iraq needs to rethink its economic structure to preserve its reserves. Otherwise, relying heavily on natural resources has historically led to economic collapse in many countries. Reducing excessive spending and diversifying income sources beyond oil are essential first steps for the future.