Iraq has devalued its national currency again, undoing the previous government’s move to strengthen the Iraqi dinar and prompting calls in parliament to reverse the decision.

The cabinet approved new exchange rates for the dinar on Tuesday, following an emergency recommendation from Finance Minister Falih al-Sari and the governor of the Central Bank of Iraq (CBI).

From Wednesday, banks and exchange companies have been selling dollars to the public at 1,520 dinars each, 200 higher than the previous price.

MPs who opposed the move had the agenda for Wednesday’s session of parliament cancelled in order to debate it instead.

The finance minister and the central bank governor are due to appear before parliament on Thursday to discuss the devaluation.

Here is what we know.

Why has Iraq devalued the dinar now?

Right before instituting the devaluation, Iraq’s government adopted its annual budget for 2027. It plans to spend 217 trillion dinars (about $166bn) next year, and expects a deficit of more than 40 trillion dinars ($30bn).

The massive shortfall reflects the difficult financial situation Iraq faces as a consequence of the US war on Iran. Since fighting began in late February, shipping through the Strait of Hormuz has been severely disrupted.

Iraq’s oil exports – the majority of which must transit Hormuz to reach global markets – have fluctuated throughout the war, at one point falling by 90 percent to a trickle. In August, they were at 2.34 million barrels a day, far lower than their pre-war average of 3.6 million.

Last month, Prime Minister Ali al-Zaidi said his country was “facing extraordinary economic challenges”, having lost about $60bn in oil revenue as a result of the disruption.

Oil revenues pay for more than 90 percent of Iraq’s federal budget. The lost income has made it harder to pay state salaries and the CBI’s foreign currency reserves fell from about $106bn before the war to roughly $80bn by late August.

Speaking to the Reuters news agency, Iraqi analyst Mohammed al-Saffar said the measure “gives the government more dinars for each dollar of oil revenue, but raises import costs and reduces households’ purchasing power”.

Why are some MPs opposing devaluation?

Iraq’s Central Bank described the decision as a “strategic step” to steady the country’s finances. But many MPs have urged the government to reverse the change, saying it will raise the cost of living for Iraqis.

In a joint statement on Wednesday, dozens of MPs opposed to the move said they had not been told how or why the decision came about – and that the CBI should have explained it to parliament before it was taken.

Speaking on their behalf, MP Aziz Nasser al-Shammari, who sits on the Iraqi parliament’s integrity body, denounced the move, saying that they had been “surprised” by the decision. “Waging war on the poor like this is wrong,” he declared.

Hassan al-Asadi, leader of the al-Nahj National Alliance bloc, rejected the measure and suggested alternative methods to balance the budget, such as cutting unnecessary spending.

MP Saba al-Saadi was also among those who rejected using a weaker dinar to plug the budget gap. She blamed the Finance Ministry and the CBI for what she called financial mismanagement and vowed to bring the matter before parliament for review.

What does it mean for ordinary Iraqis?

A weaker dinar against the dollar means that imports will become more expensive for Iraqis, raising costs that have already been elevated by regional instability.

Iraq relies on imports for much of what it consumes, from food and medicines to raw materials for industry. Last month, Iraqi consumers and business owners told Al Jazeera that prices had already risen significantly since the Iran war began, on top of delays and disruption to seaborne imports.

Opposing MPs criticised the adoption of the measure at a time when Iraqis were already facing rising prices, import fees, taxes, unemployment and delays in government salary and welfare payments.

Al-Asadi called attention to a growing gap between the official and parallel price of dollars in the country, warning it could “inflict severe harm on the poor and vulnerable”.

After the new official rate took effect on Wednesday, the rate of the dollar on the parallel market rose as well, with the gap between them widening.

In practice, most Iraqis cannot get dollars at the official rate and pay the parallel market price instead.

Has Iraq done this before?

Yes. In December 2020, Iraq devalued the dinar to 1,450 per dollar from about 1,182, after a crash in oil prices left the government short of cash.

A leaked draft budget had set out the move alongside salary cuts, prompting an outcry from state employees.

At the time, Mohammed al-Daraji, a member of parliament’s finance committee, said the weaker rate would help cover the budget gap but warned of steep price rises unless the government helped poor families.

Recalling that devaluation, al-Asadi said private banks and currency speculators, not the state, had profited from the difference between what the CBI and private banks charged for dollars.

In January 2023, after the dinar slid to about 1,670 per dollar amid US curbs on dollar flows, then-Prime Minister Mohammed Shia al-Sudani replaced the central bank governor. His government later strengthened the dinar, setting the rate for the public at 1,320.

The MPs who issued Wednesday’s joint statement also asked how citizens would be affected by the dollar rate being cut under the previous government, only to be raised again.