Iraq’s foreign exchange reserves play a crucial role in the country’s economic stability. As a major oil exporter dependent on global oil prices, Iraq needs healthy reserve levels to manage external shocks and finance imports. This article will examine Iraq’s current reserve holdings, their composition, how reserves are managed, challenges facing reserves, and the outlook for the future.


Foreign exchange (forex) reserves are assets held by a nation’s central bank in foreign currencies. These usually include holdings in dollars, euros, pounds, yen and other major currencies. Reserves act as a buffer against external economic shocks and help maintain currency valuation and liquidity. For Iraq, reserves also enable the government to pay for key imports like food and medicine.

Iraq’s reserves come largely from oil export earnings. As a founding member of OPEC, Iraq’s economy rises and falls with the global oil market. This reliance on petrodollars has advantages but leaves Iraq vulnerable to oil price swings. Careful reserve management is therefore essential.

This article will analyze Iraq’s current reserve assets and management. It will look at reserve composition, how they changed after Saddam Hussein, and reforms by the Central Bank of Iraq (CBI). Challenges to reserves, including corruption and ISIS, will be examined. The outlook for Iraq’s reserves will also be assessed.

Current Foreign Exchange Reserves

The CBI holds most Iraqi reserves in central bank assets and the Ministry of Finance’s Development Fund for Iraq (DFI). CBI’s reserves hit $54 billion at end-2022, down from over $90 billion in 2021 due to global factors. The DFI held $3-5 billion more.

Iraq’s current reserve adequacy looks sufficient by metrics like months of import cover. Reserves cover over 6 months worth of Iraqi imports, above the 3-month benchmark for adequacy.

The CBI also aims to maintain reserves equal to 90-120% of the local dinar money supply. This helps defend the peg of 1,470 dinars per U.S dollar. Current reserves equate to over 100% of broad money, suggesting a healthy cushion.

Composition of Reserves

Iraq’s foreign exchange reserves consist primarily of deposits held abroad in major reserve currencies like the U.S. dollar and euro.

Over 80% of the CBI’s reserves are in U.S. Treasuries and deposits held at the Federal Reserve Bank of New York. Most DFI funds are also held by the NY Fed.

This heavy dollar exposure reflects Iraq’s dependence on oil exports invoiced in dollars. It also showcases Iraq’s close but complex relationship with the United States.

Gold comprised over $3 billion or around 5% of the CBI’s reserves as of early 2022. The CBI continued buying gold in 2022 to diversify away from the greenback.

Other reserve currencies like the euro and British pound account for well under 10% of assets. Yen reserves are minimal at less than 1%.

History and Evolution of Reserves

Iraq’s foreign exchange reserves ballooned in the 1970s amid rising oil prices after the 1973 OPEC embargo. Saddam Hussein then squandered reserves in the 1980s during the Iran-Iraq war. Reserves crashed from $35 billion in 1980 to just $3 billion by 1995.

Reserves began rebuilding in 1996 under the UN Oil-for-Food program. They surged to over $10 billion by 2003 as exports recovered despite sanctions.

Post-Saddam Rebuilding of Reserves

Following the U.S. invasion in 2003, reserves were largely depleted. The CBI and Ministry of Finance had to be rebuilt from scratch. This allowed adoption of modern reserve management following decades of sanctions and isolation.

With post-war oil exports recovering, reserves soared from near zero in 2004 to $17 billion by 2006 and $45 billion by 2008. The DFI was also created in 2003 to hold oil revenues for budget spending.

Surging oil prices and output over 2003-2008 enabled massive reserve accumulation. The CBI also rolled out reforms for managing and accounting of reserves. This included improving transparency through audits and reconciliations.

Reserve Management and Reforms

The Central Bank of Iraq has sole legal authority for reserve management operations. The CBI invests reserves abroad conservatively in low-risk assets per its mandate.

The CBI has undertaken various reforms and improvements in recent years:

  • Adoption of modern reserve management systems for tracking flows.
  • Public filings and audits for enhanced transparency.
  • Conservative investment policies limit risk exposure. Assets held at major central banks.
  • Expanded teams and training to build capacity.
  • Upgraded technological infrastructure.

Further reforms are still needed for investing capabilities, transparency, and overall governance. But the CBI has made major strides from the opacity of the Saddam era.

The IMF and World Bank have supported many reforms through policy advice and technical assistance. This helped the CBI adopt international best practices.

Challenges Facing Foreign Exchange Reserves

Despite rebuilding reserves, Iraq faces several risks and challenges:

Oil price volatility – As an oil-dependent economy, Iraq remains vulnerable to oil price swings. Global price crashes like in 2014-15 and 2020 rapidly deplete reserves.

Budget deficits – Years of large government deficits have eroded reserves. Deficits monetized by the CBI drain reserves over time.

Corruption – Iraq is ranked one of the most corrupt countries, which drains hard currency reserves through graft and smuggling.

ISIS – The ISIS insurgency during 2014-2017 severely damaged Iraq’s economy and reserves position. Ongoing terrorism risks further disruptions.

Import reliance – Iraq imports up to 90% of goods, which weighs on reserves. The strong dinar hurts domestic production.

Capital flight – Elites have frequently moved funds abroad given years of conflict and sanctions. This constitutes a major leakage of reserves.

Dollar dominance – Overreliance on dollars leaves reserves exposed to potential U.S. sanctions or asset freezes.

Outlook for Iraq’s Reserves

Iraq’s reserves remain vulnerable despite their apparent adequacy today. Much depends on oil prices and production trends.

Higher investment and OPEC quotas could boost Iraq’s oil output and top up reserves. But global transitions away from fossil fuels may hit demand and prices over time.

Fiscal reforms are needed to curb deficits and rebuild buffers. The 2022-2024 budget depends critically on oil at $70-80 per barrel. A shortfall would pressure reserves.

Diversification efforts by the CBI and Ministry of Finance aim to shift reserves into other currencies like euros and gold. But breaking the heavy dollar dependence remains challenging.

If oil prices stabilize at moderate levels, Iraq may rebuild reserves back towards $90 billion over 2023-2025. But much depends on maintaining social stability and pushing through reforms. A repeat of crises like ISIS or the 2020 oil crash could easily burn through reserves again.

Careful stewardship of Iraq’s external assets is vital to maintain financial stability and fund critical imports like food, medicine and energy. The CBI’s prudent management of reserves provides some reassurance, but risks remain elevated.


Iraq’s foreign exchange reserves stand at adequate but still vulnerable levels following years of conflict and external shocks. The Central Bank of Iraq has made progress in reforms and management despite many challenges. But reserves remain heavily dependent on oil exports while risks like budget deficits and corruption persist. Rebuilding reserves while diversifying the economy remains a prolonged process requiring stability and reform. With sound policies, Iraq can restore its reserves to pre-ISIS levels, but the path forward will be difficult.