Iran and Kuwait, two oil-rich countries on opposite shores of the Persian Gulf, now offer one of the starkest contrasts in the region’s currencies. Kuwait is home to the world’s highest-valued currency unit against the US dollar, while Iran’s rial has plunged to record lows amid war, sanctions and economic isolation.
The contrast is not limited to Kuwait. Other Gulf states including Bahrain and Oman, as well as Jordan further west, also have currencies with a far higher nominal value against the dollar than Iran’s rial. Kuwait and Bahrain have also been drawn into the current conflict because of their strategic ties with Washington and the presence of US military facilities on their soil.
The numbers underline the divide. One Kuwaiti dinar is
worth around $3.24, while the Iranian rial has recently fallen beyond 2.2 million to the dollar on the free market. At those rates, one Kuwaiti dinar is equivalent to roughly 7.1 million Iranian rials.
The countries’ proximity makes the divergence striking. Kuwait and Iran are separated by the waters of the northern Persian Gulf, yet their currencies reflect two very different economic and geopolitical realities: one supported by a tightly managed exchange-rate regime, huge foreign assets and decades of saving oil wealth; the other battered by sanctions, war, inflation and restrictions on its access to global markets.
The rial has lost about half its value against the dollar over the past year and fell to a record low of more than 2.2 million rials per dollar in early September. Official figures cited by international media also show inflation running at extremely high levels, with prices rising particularly sharply for food and other essentials.
Dreams Broken
For ordinary Iranians, the currency’s collapse is not an abstract measure. For many Iranians already dealing with years of sanctions and rising prices, even a necessary trip across the border can become an impossible expense.
For Azari, a 21-year-old who works at a small shop in Tehran, the calculations are more mundane but no less relentless. She has cut back on ordinary purchases and small pleasures such as going to a cafe as prices rise, business slows and months of conflict squeeze household budgets.
“I have to cut back on one thing in order to afford something else,” she told AFP.
“If I use Snapp (a ride-hailing app) one day, I won’t be able to afford lunch that day… If I replace the lenses of my glasses, I can’t go to my class.”
Such calculations have become part of daily life for many Iranians as the economy absorbs another round of shocks. Iranian officials have long promoted a “resistance economy”, a strategy first advanced by late Supreme Leader Ali Khamenei in 2010 to reduce the country’s dependence on the outside world. In May, Iran’s new Supreme Leader Mojtaba Khamenei called for legislation to support the strategy and ease economic pressure.
Why Is Kuwait’s Dinar So Valuable?
The answer begins with the way Kuwait manages its currency. Unlike countries that allow their currencies to float freely, Kuwait’s central bank determines the dinar’s exchange rate against an undisclosed basket of major currencies representing the country’s key trade and financial relationships. The system was restored in 2007 after Kuwait briefly pegged the dinar to the US dollar. The central bank says the arrangement is intended to preserve the currency’s relative stability and shield the domestic economy from imported inflation.
That policy has given the dinar a stable nominal value for years. The IMF said in its latest Kuwait assessment that the basket peg remains an appropriate monetary anchor, has helped support macroeconomic stability and has not come under market pressure.
Kuwait Saved Its Oil Wealth
Kuwait began setting aside oil revenues for future generations decades ago. Its Future Generations Fund was created in 1976, with a law requiring at least 10% of the state’s annual revenues to be transferred to it. The Kuwait Investment Authority, established in 1982, manages the fund along with the country’s General Reserve Fund.
The result is an external financial cushion. The IMF estimates Kuwait’s net foreign asset position at $1.287 trillion, equivalent to 803% of GDP, at the end of 2024. It said the dinar’s credible exchange-rate regime is supported by this large and rising stock of foreign assets.
Iran Has Oil. So Why Is The Rial Collapsing?
Iran’s problem is not a lack of oil. It is the difficulty of turning that oil wealth into usable foreign currency.
For years, US sanctions have restricted Iran’s access to international banking and made it increasingly difficult to sell its oil openly and repatriate the proceeds. Tehran has relied heavily on sanctions-evasion networks and a smaller group of trading partners, particularly China, to keep its oil economy functioning.
The pressure intensified dramatically this year.
A US naval blockade has severely disrupted Iranian crude exports through the Strait of Hormuz. Reuters reported that Iranian crude loadings fell from around 2 million barrels per day in March to roughly 220,000-255,000 barrels per day in August. The loss of oil exports has deprived Tehran of a crucial source of foreign currency at precisely the moment it needs dollars and other hard currencies to pay for imports and stabilise the rial.
Reuters has also reported that Iranian oil exports have fallen sharply amid intensified US sanctions, while access to international financial systems has become increasingly restricted. Iranian officials have warned that trade has contracted and imports have been hit particularly hard.
That creates a vicious cycle.
When foreign currency becomes scarce, the rial comes under pressure. A weaker rial makes imported goods and raw materials more expensive. Higher import costs feed inflation, which further reduces the purchasing power of the currency. As confidence in the rial falls, households and businesses have greater incentive to hold dollars, gold or other stores of value instead — putting still more pressure on the domestic currency.
The latest numbers show how severe that cycle has become. Reuters reported that the rial fell from around 1 million to the dollar a year earlier to more than 2.2 million, while official 12-month average inflation approached 70%. Food and other essential goods have risen even faster.
The situation is particularly stark because Iran remains a major oil producer. The difference is that oil wealth is useful to a currency only when a country can sell its oil, receive the proceeds and convert those earnings into usable reserves and imports.
Kuwait has spent decades building institutions around that process. Iran has spent decades trying to circumvent restrictions that prevent much of its oil wealth from flowing through the conventional global financial system.
