Trade finance in Iraq: Disruptions in remittances freeze importers’ liquidity

Trade finance in Iraq: Disruptions in remittances freeze importers’ liquidity

2026-11-02

Shafaq News – Baghdad
The termination of the dollar platform in Iraq did not lead to the smooth financing of foreign trade as hoped, as the bottlenecks moved from the old transfer mechanism to correspondent banks and their complex procedures, amid delays in importers’ remittances and the freezing of their funds, while small traders find themselves facing limited options that push some of them to the parallel market, which ultimately affects commodity prices and the purchasing power of citizens.

Since the beginning of 2025, Iraq has moved towards adopting commercial banks and international correspondent banks in carrying out foreign transfers, as part of efforts to enhance transparency and compliance with international standards. However, this shift revealed the varying capabilities of banks to complete transactions, as well as administrative and banking complexities that still hinder trade, especially for small and medium-sized importers.

Banking obstacles

In this context, Professor of International Economics, Nawar Al-Saadi, believes that the main problem does not lie in ending the dollar platform itself, but rather in the failure to keep pace with the transition to the new banking system by developing sufficient administrative and banking procedures that ensure the speed of commercial transfers.

Al-Saadi, speaking to Shafaq News Agency, points out that the varying capabilities of banks and the complexity of requirements for importers, along with banking and customs bureaucracy, have created additional obstacles to trade, especially with the requirement to submit prior data and pay fees and taxes before completing some import procedures.

The decision to collect customs duties in advance was suspended on October 6, 2026, after its implementation raised problems related to the timing of collecting duties and its impact on importers. Al-Saadi says that this experience revealed the need for coordination between monetary, financial and customs policies before adopting any new procedures.

He explains that paying fees and taxes in advance freezes part of the trader’s working capital, as well as increasing storage, shipping and delay costs, which puts more pressure on the liquidity of small businesses and disrupts the business capital cycle.

Late transfers

The problem is not limited to small importers, as large traders also face delays in receiving their remittances to foreign entities, due to the limited number of banks capable of executing the transfers, and the restrictions imposed on a number of Iraqi financial institutions.

In this regard, economist Ahmed Al-Janabi says that the failure to finance trade includes two main segments of traders: large, regular importers and small traders who do not have suitable official banking channels to cover their transactions.

Al-Janabi adds to Shafaq News Agency that major traders are facing delays in their transfers ranging between one month and one and a half months, noting that trade financing depends on the Trade Bank of Iraq (TBI) and four foreign banks, but these channels are also experiencing delays in completing importers’ transfers.

According to Al-Janabi, this delay is pushing some traders to look for dollars in the parallel market to cover their trade obligations, which increases the demand for them and adds financial burdens to the cost of imports, while small traders face a different problem, which is the lack of a platform dedicated to them that allows them to finance their trade through official channels.

He points out that the Central Bank is working on creating a mechanism or platform specifically for this category, with the need to monitor the movement of funds and verify their sources and uses, in order to prevent their exploitation in money laundering or financing illegal commercial activities.

Freezing liquidity

For his part, the Vice President of the Baghdad Chamber of Commerce, Jaafar Al-Hamdani, confirms that the delay in remittances is disrupting the local market and directly affecting the capital cycle of businessmen and importers.

Al-Hamdani told Shafaq News Agency that a large number of importers have paid the amounts of their transfers to the banks and submitted the documents proving this, but their transactions are still significantly delayed, which affects their commercial obligations and the movement of the market.

He adds that the smooth flow of trade is linked to the speed of capital transfer and enabling importers and businessmen to complete their transactions with foreign markets, noting that the Baghdad Chamber of Commerce is following up on these problems through its channels with government agencies, the Central Bank and Iraqi banks, with the aim of facilitating transfer procedures and speeding up their completion.

Banking restrictions

In another explanation of the roots of the crisis, economist Ahmed Abdel Rabbo links the failure to finance foreign trade to structural imbalances in the banking sector, as a result of restrictions and sanctions that affected a number of Iraqi banks and limited their ability to deal in dollars and foreign banking channels, as well as the slow implementation of the banking reform program being carried out by the global management consulting firm Oliver Wyman in coordination with the Central Bank.

Abdul Rabbo told Shafaq News Agency that Iraq has moved from the stage of regulating foreign transfers to a more complex stage, related to the ability of banks to carry out trade operations efficiently and quickly, indicating that the availability of foreign currency alone is not enough unless the merchant has a bank with foreign correspondent relationships and clear procedures that ensure the completion of transfers without delay or additional costs.

In this regard, the issue of returning Iraqi banks to foreign correspondent channels stands out as one of the proposed paths to address bottlenecks. The Central Bank of Iraq confirmed on July 18, 2026, that seven banks had qualified to pass the first phase of the banking reform program and return to dealing through correspondent channels in currencies other than the dollar, provided that their dealing in the dollar would be subject to the completion of additional requirements later.

Abdel Rabbo believes that accelerating the return of these banks to operating in euros, UAE dirhams, and Chinese yuan would expand trade finance options, reduce reliance on a limited number of financial institutions that currently hold the largest share of remittances, and create competition in providing banking services to traders and importers.

He emphasizes the need to accelerate Oliver Wyman’s program and expand the base of eligible banks, rather than keeping reform within long administrative processes, in order to increase the banking sector’s ability to carry out foreign transfers.

alternative currencies

With the continued difficulties in dollar transfers, attention is turning to alternative currencies as a possible option to alleviate pressure on traditional banking channels, but their effectiveness remains linked to the availability of the necessary banking infrastructure to settle commercial transactions.

Ahmed Al-Janabi supports the possibility of successfully dealing in other currencies, noting that the Association of Iraqi Banks has put forward the option of some banks returning to work through the international banking system in currencies other than the dollar, especially since a number of them have completed the reform requirements set by Oliver Wyman, but have not yet regained their normal activity.

It is believed that this path could help ease restrictions on Iraqi banks and provide additional options for traders, but it needs executive steps that would allow these banks to effectively resume their operations.

Nawar Al-Saadi believes that dealing in euros, yuan, and dirhams represents an important step to diversify trade financing sources and reduce absolute dependence on the dollar, but he warns against dealing with it as a quick or sufficient solution to end the influence of the parallel market.

He attributes this to the fact that the success of alternative currencies requires correspondent banks, settlement agreements, sufficient liquidity, and reliable transfer channels, in addition to compliance with international standards, stressing that the main problem lies in the ability of the financial system to deliver foreign currency to the real importer at the appropriate speed and cost.

parallel market

While searching for alternatives to the US dollar, the parallel market continues to benefit from the gap between the actual demand for foreign currencies and the ability of official banking channels to meet it.

Al-Saadi says that this market cannot be eliminated simply by providing dollars or introducing alternative currencies, because it reflects a flaw in the ability of official banks to meet the needs of importers quickly and efficiently, and whenever transfers are disrupted, the space for irregular transactions expands.

For his part, economist Safwan Qusay points out that the Iraqi trade system needs to strengthen dealings with long-term trade contracts with known origins, which would allow for faster processing of transfers and letters of credit, and facilitate the auditing procedures carried out by the US Federal Reserve.

Qusay adds to Shafaq News Agency that knowing the suppliers and sources of goods and documenting contracts would reduce the delay or rejection of some transfers when there are doubts about the suppliers or the nature of the equipment.

Qusay points out that the Central Bank has taken measures to shorten the time required to complete transfers from 23 days to three days, in an effort to reduce delays and meet the demand for dollars more smoothly, as well as moving towards opening up to other currencies to finance trade.

However, he warns that some small and medium-sized traders continue to resort to the informal market, instead of dealing through official bank accounts and benefiting from the dollar at the approved rate of 1,520 dinars, noting that some of them resort to buying dollars from the parallel market and bringing in goods through unofficial outlets or changing the type of imported goods.

He affirms that expanding the possibility of using the electronic platform for this category, especially traders in the Kurdistan Region and the liberated areas, would alleviate pressure on the parallel market, provided that the banking system is linked to taxes and customs within a unified electronic system that allows for the identification of the trader’s identity, the nature of the imported goods, the fees due, their warehouses, and the final buyer.

Consumer bill

The repercussions of trade finance failures are not limited to banks and importers, but extend to the local market, where the costs of delays, financing and storage become additional burdens on the prices of goods and services.

Ahmed Al-Janabi warns that some traders may import their goods at the official price, then sell them to the consumer at costs calculated at the parallel market price, in an effort to achieve higher profit margins, which requires monitoring by the concerned authorities and economic security to control these practices.

Jaafar Al-Hamdani also confirms that the delay in remittances directly affects the prices of goods and services, while Nawar Al-Saadi concludes by saying that the importer initially bears the cost of delay, financing and storage, before these burdens are transferred to the Iraqi consumer and affect his purchasing power.

shafaq.com