Iran has been facing a severe economic crisis due to the harsh sanctions regime imposed on it by the US in 2018.
With the US restricting Iran’s ability to access the global financial system, the country has been forced to rely on alternative methods to obtain the US dollars it needs to fund imports of goods and services.
Iraqi source no longer sustainable
One of the primary ways Iran has been obtaining US dollars is through the Iraqi black market. However, this method has proven unsustainable for Iran, leading it to pressure Iraq’s government to pay its debts to Tehran through official channels.
Iraq and Iran have been close trading partners for decades, with trade between the countries totaling around $14 billion annually. However, with Iraq struggling to pay for its Iranian imports due to the US sanctions, Iran has been forced to look for alternative ways to obtain US dollars.
The Iraqi black market has been a significant source of US dollars for Iran, with the country paying $400,000 extra in fees for every $1m it changes. However, the rising cost of exchanging dinars on the black market, combined with the increasing rates and fees for illicit deals, has become significant for Iran, leading it to halt its black market activities.
Instability in rates
According to Iraqi officials, the Iranians decided to stop buying dollars from Iraq’s black market last week, causing the exchange rate to decline rapidly. The rate on Monday was 1,495 dinars per dollar, compared to 1,580 the day before. A large number of exchange companies in the semi-autonomous Kurdistan region, which is the main land corridor for dollar-smuggling operations, began to make dollars available for anyone after reserving the currency for its most exclusive clients in February and March.
Despite the decline in the black market exchange rate, it is not clear where Iran will now obtain its US dollars. The US restrictions on the daily currency auction held by the Iraqi Central Bank mean that anonymous people and sanctioned countries like Iran can no longer use the service to obtain dollars.
While the foreign currency auction data for the last week of March shows a remarkable increase in sales, most of these sales were amounts to cover “external transfers” and credit for prepaid electronic cards. Iraqi officials told Middle East Eye that the US Federal Reserve has made no changes to the restrictions it forced on the auction, and the increase in activity was caused by other factors, such as the trade ministry needing dollars to pay for food purchases.
The US sanctions regime has had a severe impact on Iran’s economy, with inflation soaring, the currency plummeting, and widespread protests erupting across the country. The sanctions have also led to a significant decline in Iran’s oil exports, which were the country’s primary source of revenue.
Iran’s reliance on the Iraqi black market to obtain US dollars highlights the severe impact the sanctions regime has had on the country’s ability to trade and obtain necessary goods and services.