British involvement in the Middle East began with the General Maritime Treaty of 1820. This established the Trucial States and the nearby island of Bahrain as a base for suppressing sea piracy in the Persian Gulf. Meanwhile, in 1839 the British East India Company established an anti-piracy station in Aden to protect British shipping that was sailing to and from India. Involvement in the region expanded to Egypt in 1875 because of British interests in the Suez Canal, with a full scale British invasion of Egypt taking place in 1882. Muscat and Oman became a British Protectorate in 1891,https://www.rafmuseum.org.uk/research/online-exhibitions/an-enduring-relationship-a-history/a-history-of-oman/ A History of Oman, Royal Air Force Museum and meanwhile Kuwait was added to the British Empire in 1899 because of fears surrounding the proposed Berlin-Baghdad Railway. There was a growing concern in the United Kingdom that Germany was a rising power, and about the implications that the proposed railway would have as regards access to the Persian Gulf. Qatar became a British Protectorate in 1916, and after the First World War, the British influence in the Middle East reached its fullest extent with the inclusion of Palestine, Transjordan and Iraq.
Background For nearly four hundred years, silver Spanish dollars (pieces of eight) had served as the international currency, and most of these coins were minted in Mexico City, Lima, and Potosí in the New World. Following the successful introduction in 1821 of a gold standard in the UK based on the gold sovereign, the policy of introducing the sterling currency into all of the British colonies began with an imperial Order in Council dated 1825, when the source of the Spanish dollars was drying up following revolutions in Latin America.
In 1825, the British Empire had not as yet reached its widest extent. Following the American Revolution, Britain's attention switched to India, which was originally controlled by the British East India Company. The British government did not take direct control over India until after the Indian mutiny of 1857. Hence the imperial Order in Council of 1825 did not apply to India. As such, the already circulating silver rupee continued to be the currency of India for the entire duration of the British Raj, and afterwards into independence. The Indian rupee was not only the currency of India but also the currency of an extended region to its west, which stretched across the Indian Ocean to the east coast of Africa, up through the horn of Africa, through Aden and Muscat in Southern Arabia and Eastern Arabia, and along the Arabian coast of the Persian Gulf, extending even as far inland as Mesopotamia.
Since the Middle East was a late addition to the British Empire, the British government had by then already learned from their experiences in places such as Canada, Ceylon, Mauritius, and Hong Kong that it is highly impractical to impose a new currency in the place of already existing ones. So, even though the pound unit of account eventually spread into the Middle East, the associated shillings and pence coinage never circulated there. This was the opposite of the situation in the Eastern Caribbean, where sterling shillings and pence coinage was used in conjunction with a Spanish dollar unit of account.
Cyprus
The first territory in the Middle East to adopt the pound sterling unit of account was Cyprus. At the time of the occupation in 1878, for the purpose of paying the troops the British government instructed that a Turkish lira was to be rated at of a pound sterling. There was a complication, however, in that although one lira was equal to 100 Turkish piastres, this rate differed in practice between different locations. Furthermore, the copper piastre itself had depreciated relative to the silver piastre, such that in the bazaars one needed 175 copper piastres to buy a British gold sovereign. An additional problem was that gold coins were exported from Cyprus to Constantinople, where they could obtain an even greater amount of piastres than what was paid for them in Cyprus. Meanwhile, the Treasury pointed out that it would be unwise to introduce British shillings and pence, at once, as this would be seen as a foreign currency system. In order to solve these problems, the British government demonetised the debased Turkish piastres and introduced a new legal tender bronze British piastre at 180 to the gold sovereign. With this altered rating, the people made a profit when paying sovereigns into the treasury in settlement of their debts, and this reduced the incentive to ship the sovereigns to Constantinople. So, in 1879, after taking de facto control of Cyprus from the Ottoman Empire, The British introduced the pound sterling unit there at the rate of 180 bronze British piastres. Having deliberately avoided introducing shillings and pence, the new 9 piastre and 18 piastre coins did however correspond respectively in size and value to the shilling and florin coins in the UK. The pre-1879 para, at 40 para to the kuruş/piastre, continued as a unit of account appearing on postage stamps, but it was never seen on any coins or banknotes.
The Cyprus Currency Board was established in 1927 and held the responsibility of administering the Cypriot pound.
In 1947, the word shilling appeared for the first time on the 9 piastre and 18 piastre coins, but then in 1955, Cyprus adopted a decimal system, with 1,000 Mils in a pound. When the UK floated the pound sterling on 23 June 1972, some twelve years after Cyprus had obtained independence, the Cypriot pound began to diverge from the 1:1 parity it had maintained with the UK unit since its foundation in 1879.
In 2008, Cyprus adopted the euro and the Cypriot pound ceased to exist.
Palestine
Following the institution of the British Mandate for Palestine in 1918, the Egyptian pound was introduced and it circulated alongside the Ottoman lira. Then in 1927, to end the confusion that had arisen as a result of the twin circulation of Turkish and Egyptian money in the territory, the British authorities established the Currency Board for Palestine, which introduced the Palestine pound, equal in value to the pound sterling, which was legal tender in Mandatory Palestine and in Transjordan. The Palestine pound was not, however, used in conjunction with the normal sterling shillings and pence coinage. It was used with a decimal system in which it was divided into 1,000 mils.
The Currency Board was dissolved in May 1948, with the end of the British Mandate, but the Palestinian pound continued in circulation for a transitional period:
Israel adopted the Israeli pound on 16 August 1948 at par with the Palestine pound, and meanwhile the 1:1 parity with the pound sterling continued until 1952, after which the external value of the Israeli pound began to drop rapidly. Jordan adopted the Jordanian dinar in 1949. The name dinar then became the preferred name for the pound sterling unit of account as it spread to other Middle East territories. The Jordanian dinar maintained its 1:1 parity with the pound sterling until 18 November 1967 when Harold Wilson devalued the pound. The Jordanian dinar did not devalue in parallel, hence breaking the sterling parity. In the West Bank, the Palestine pound continued to circulate until 1950, when the West Bank was annexed by Jordan, and the Jordanian dinar became legal tender there. In the Gaza Strip, the Palestine pound continued to circulate until April 1951, when it was replaced by the Egyptian pound, three years after the Egyptian army took control of the territory.
Arabia and Mesopotamia
Prior to British involvement in Arabia, Ottoman piastres and Maria Theresa thalers circulated in the region, with the thaler typically valued at 20 piastres.
(The Maria Theresa thaler was a variety of the silver thaler coin first minted in Joachimsthal, Bohemia, in 1519, and known as the Joachimsthaler. The word "dollar" originates from the word Thaler, and due to the similarity between the German thalers and the slightly earlier Spanish eight real coin, the latter eventually became known in the English speaking world as Spanish dollars (or pieces of eight), these being the parent coins the modern US dollar.)
Then, with the arrival of the British in Aden in 1839, Indian rupees were introduced to the Arabian coast. British influence soon spread to the Gulf States, and the Indian rupee spread into those territories too. Later, during the First World War the Indian rupee also spread into Mesopotamia.
On 22 January 1928, the Kingdom of Hejaz and Nejd introduced a new silver riyal loosely based on the Maria Theresa thaler but adjusted in weight slightly, so as to correspond in value exactly to a tenth of a British gold sovereign. In 1932, the Kingdom of Hejaz and Nejd became Saudi Arabia, and in 1936 the riyal was debased so as to correspond in weight and fineness to the Indian rupee.
Meanwhile, on 19 April 1931, Iraq, which had emerged as a British Mandate on the territory of Mesopotamia, adopted the Iraqi dinar at a 1:1 parity with the pound sterling, to replace the Indian rupee. This 1:1 parity with sterling continued until 18 November 1967 when Harold Wilson devalued the pound. Iraq did not follow suit and hence the parity was broken.
On 1 October 1951, the Indian rupee was replaced in Aden by the East African shilling, with twenty shillings being equal in value to one pound sterling. The East African shilling had itself been created in 1922 as a monetary unit out of the Indian rupee when the rising price of silver in the wake of the First World War caused the Indian rupees that circulated in British East Africa to rise in value to two shillings sterling. The East African shilling was launched at par with the shilling sterling at the value of half an Indian rupee.
In 1959, as a measure to prevent gold smuggling, the Reserve Bank of India and the Indian government, in conjunction with the British authorities, replaced the Indian rupee in the Gulf States with the Gulf rupee at a 1:1 parity.
1960s onwards On 1 April 1961, Kuwait adopted a dinar unit at a 1:1 par with the pound sterling to replace the Gulf rupee, and it remained at this parity until 18 November 1967, when Harold Wilson devalued the pound sterling. As with the cases of the Jordanian dinar and the Iraqi dinar, Kuwait did not devalue in tandem, hence the 1:1 parity with the pound was broken that year.
On 1 April 1965, the South Arabian dinar replaced the shilling in Aden at twenty shillings to the dinar, and in this case, Aden did devalue in parallel with sterling on 18 November 1967, hence maintaining its 1:1 parity with sterling beyond the date of the British withdrawal from Aden, less than a fortnight later. https://www.un.org/en/development/desa/policy/wess/wess_archive/1967wes_part2.pdf World Economic Survey, United Nations, 1967, Table 8 on page 14 (page 23 in the pdf file) The South Arabian dinar was then renamed the South Yemeni dinar, and meanwhile it continued the 1:1 parity with sterling, at least into 1971, after which information about its value becomes hard to find, but by 1983, it had already diverged considerably from the sterling parity. The divergence probably began in June 1972 when the UK floated the pound sterling, because figures in the 1983 Financial Times "World Value of the Pound" suggest that the South Yemeni dinar had probably followed a similar course to that of the Omani riyal nearby. The South Yemeni unit eventually ceased to exist when South Yemen united with North Yemen in 1990.
On 1 October 1965, Bahrain replaced the Gulf rupee with a Bahraini dinar unit at a 10:1 ratio, i.e., fifteen shillings sterling. This rose to seventeen shillings and sixpence against the pound on 18 November 1967 when Bahrain did not devalue with the pound sterling.