Currency Liquidator Educational Blog - Factors That Could Affect Iraqi Dinar Value

Iraqi Dinar Recaps and Guru Updates

Several key changes have taken place over the last few weeks. Russian President Vladmir Putin has extended more support to Iraq, which should help in the quest against ISIS. The Ministry of Oil and Iraqi oil companies have also forged contracts with two Chinese firms and a global workforce logistics company. While the country is still facing some challenges from declining oil prices and finding new solutions to the economic challenges companies outside the energy sector face, economic activity is expected to improve in the coming year.

Iraq News: Russia May Join Allies in New Offensive Against ISIS

Several changes have transpired in recent weeks, which could prove beneficial for the Iraqi people. These changes include an expansion of the national agricultural industry and stronger support from allies in the quest to overturn ISIS. However, the country also faces some other challenges, such as a worsening water shortage. All of these factors could affect the value of the Dinar in the months to come.

Russia May Support Efforts Against ISIS

The Islamic State remains the single biggest threat to the Iraqi government. The Iraqi government has been strengthening ties with its allies, which is helping them gain momentum in the campaign against the militants. The United States has increased military aid and begun a series of 23 air strikes in Iraq and Syria. Russian President Vladmir Putin has expressed strong condolences for Iraq after a recent attack and suggested that Russia may provide greater military support to Iraq.

“Accept my most sincere condolences on the brutal terror act carried out near the capital of Iraq. Dozens of civilians became victims of the Islamic State terrorists that slipped in Khan Bani Saad. We reaffirm our continued support and solidarity with the Iraqi people, who have been leading a long and hard battle against extremist forces,” Putin stated on the Krelmin website.

Expanding Agricultural Industry

The agricultural industry is the largest source of employment. However, the industry is still undergoing significant changes to boost production to feed the Iraqi people. Iraq still imports most of its grain from other countries, but farmers have invested in new technology to increase output.

Government officials are brainstorming solutions to further increase grain production. They recently told Bloomberg that they expect Iraq to become a net exporter of wheat by 2017. If they meet their target, then social stability will improve and the national trade surplus will widen.

Water Shortage

Iraq is facing a growing water shortage, which is driven largely by a growing number of people that have been displaced from fighting in the war against ISIS. The United Nations had provided several programs to supply and sanitize water for Iraq, but those programs have been tapered back due to funding shortfalls. Iraq is forced to pursue different strategies to address the problem.

Oil and Energy – Air Energi to Help Strengthen Iraq Oil Firms

Recent reports from the Ministry of Oil confirm that the oil industry has increased production to record levels. These reports have increased interest among global oil producers and paving the way for new deals.

Deals and Contracts

Several new firms have expressed strong interest in operating in Iraq. They have recently begun negotiating new contracts with the Iraqi government to help harvest untapped oil reserves.

Antonil is one of the most recent foreign oil companies to secure a contract with the Iraqi government. The Iraqi government confirmed the contract with the Chinese based company on July 21, stating that it would be extracting $140 million worth of oil. Discussions over the terms of the contract began in January, but some details needed to be finalized before the final contract terms could be established. Antonil is still conducting an internal approvals process and stated that extraction would begin as soon as it was completed.

Antonil isn?t the only Chinese oil producer to reach an agreement this past week. Honghua also struck an agreement to assist with extracting oil for another company. Honghua officials confirmed that the terms of the contract stipulate that the services will be provided for $26 million. Zhang Mi, Chairman of Honghua Group Ltd. expressed strong optimism for the new contract.

?We will continue to expand the business layout from equipment manufacturing to engineering services by taking the drilling business as the core, and to capture the enormous opportunity rising from the recovery of the global oil market in the future.?

The contracts aren?t limited to foreign oil companies. Contractors in other industries have pledged support to help boost the Iraqi oil industry. Air Energi is a global workforce solutions provider, which has extended assistance to help the BP Iraq with its staffing needs. Since the oil industry is growing steadily, it needs a strong workforce to meet demands. Air Energi has an excellent track record for helping other companies meet their needs.

Business and Foreign Investment ? Banking Sector Brainstorms Solutions to Liquidity Concerns

The Iraqi economy contracted for the first time last year, but there are a number of indicators that it is starting to rebound. The new issue presents both economic opportunities and concerns for the country as it tries to ensure growth will be sustainable.

Banks Address Liquidity Problems

Business activity and consumer spending appear to be increasing, which is forcing financial institutions to provide more capital. The banking sector has reported that it is struggling to provide sufficient capital to meet demand, but this is unlikely to become a worsening problem as economic growth accelerates. However, it may limit access to capital for businesses, which could modestly hinder expansion for a few months.

One of the problems is that deposits in some banks may be insufficient to meet future withdrawals. According to Iraqi Business News, deposits at one bank are under 2.5 million dinars, which banking administrators fear is inadequate.

Banking administrators are brainstorming new ways to address the problems. They have placed some limits on withdrawals, which should be a viable temporary solution while waiting for new dinar notes from the Central Bank of Iraq. The liquidity crunch could be a bane for economic growth over the short-term, but is unlikely to lead to many problems in the years to come.

Dinar Value & Exchange Rate

The value of the dinar has remained unchanged for the past several weeks. However, there are a number of factors that could affect its value in the coming year.

Overview of Spending

The Iraqi government faced a spending shortfall over the last few months due a decline in global oil prices. The government has started looking for new solutions to boost revenues by making the country less dependent on oil and create a more stable budget to reflect volatile oil prices.

Lower oil prices may continue to haunt the Iraqi government for a while, which may limit economic growth unless the private sector expands beyond projections. However, the problems are unlikely to last as oil prices begin to rebound. According to Market Watch earlier this week, oil prices increased for the first time in five months, which suggests that they may continue to rebound throughout the rest of the year.

If the report is the beginning of a trend, higher oil prices will eventually lead to higher tax revenues from the growing oil industry, which will help the central government expand public programs. This will help stimulate the economy and affect the value of the dinar.

Bigger Trade News

Data from the Central Bank of Iraq shows that Iraq still had a strong trade surplus in 2014. However, the trade balance declined 9.7%, largely due to declining oil prices on the global market. Greater reliance on imported goods to support the growing economy may also have caused the trade surplus to decline. If oil prices continue to rise in the next few months, then increased oil exports may offset rising imports, which will influence the value of the dinar.

Economic Variables

While the economy is showing signs of improvement, there are clear problems that will need to be addressed before Iraq can become a vibrant economy that can compete in the global market. One of the chief problems is that while poverty and unemployment are declining, the labor market will eventually stale. Most citizens are employed in the agricultural industry, while others receive significant assistance from the central government. If the Iraqi economy is to become more resilient, serious reforms are needed to improve competitiveness and expand the workforce.

One of the problems is that the government still has some onerous regulations, which limit productivity of non-oil related businesses. Al-Monitor summarized the problem succinctly in 2013:

?Yet Iraq, where gross domestic product (GDP) in 2011 was about $127 billion, is still far from achieving economic development capable of promoting real economic advancement. The non-oil economic sectors are still unable to attract investment, and the state is unable to convert its many industrial holdings to the private sector though a clearly defined allocation program. There are many laws and regulations that must be reviewed, amended or even replaced, if Iraq wants to improve the business environment in the country.?

While the government has reviewed many of those issues, more efforts are needed to fuel economic expansion and make the country less dependent on the oil industry. The Iraqi government reports that the unemployment rate is still hovering around 15%, so the country will benefit from creating a more business friendly environment. President Abadi has held discussions with the World Economic Forum and is reviewing ways to fuel economic growth and address unemployment, which will affect the value of the dinar.