OMM Redaksiyası
The withdrawal of U.S. troops from Iraq may reduce Washington’s military presence in the country. However, U.S. financial influence over Iraq’s economy remains strong.
More than two decades after the U.S.-led intervention that toppled Saddam Hussein, a significant share of Iraq’s oil revenues still moves through accounts linked to the Federal Reserve Bank of New York. The mechanism has become one of the most important and contentious legacies of the political order established after 2003.
Critics see the system as a means of limiting Iraq’s financial sovereignty. Supporters say it helps protect the country’s revenues and maintain confidence in its economy.
How was the system established?
The mechanism was set up after the U.S.-led intervention. The Coalition Provisional Authority established the Development Fund for Iraq under a U.N. mandate. Its purpose was to manage oil revenues and protect them from disputes left over from the period of sanctions and international isolation.
The structure later became an account held by the Central Bank of Iraq at the Federal Reserve Bank of New York. Foreign buyers of Iraqi oil make their payments through this system.
Oil is the backbone of Iraq’s economy. According to recent assessments by the U.S. State Department, oil revenues account for the vast majority of government income. Baghdad is therefore heavily dependent on the uninterrupted flow of proceeds from oil sales.
The system allows Iraq to receive oil payments in dollars and use the funds for public spending and international trade. The government converts some of the revenues into dinars to finance budget expenditures, while commercial banks need access to dollars to pay for imports and international transactions.
Because dollar flows pass through a financial system in which the United States plays a dominant role, Washington can influence how and when transfers are made. That influence becomes more apparent during periods of political tension.
How do dollar transfers give the United States influence?
According to Reuters, the issue drew international attention in 2020, after Iraq’s parliament passed a resolution calling for foreign troops to leave following the U.S. killing of Iranian commander Qasem Soleimani in Baghdad. At the time, Washington was reported to have raised the possibility of restricting Iraq’s access to funds held in New York.
Reuters later reported that U.S. officials had used the prospect of limiting dollar transfers during disputes involving Iraqi political forces believed to have close ties to Iran. Analysts say control over access to dollars can directly affect Iraq’s banking sector, exchange rates and public finances.
Iran and the debate over sovereignty
Iraq’s strategic ties with both Washington and Tehran make the issue particularly sensitive. U.S. officials have said tighter oversight of dollar flows from Iraq helps prevent sanctions evasion and restrict financial transfers to Iran and Iran-linked groups.
Critics, however, see the current arrangement as evidence of Iraq’s vulnerability to foreign pressure. For a number of Iraqi politicians, the debate is closely tied to national sovereignty.
The withdrawal of U.S. troops has revived questions about whether Iraq should seek alternative mechanisms for managing its oil revenues or reduce its dependence on the U.S. financial system. Such proposals have surfaced periodically, but implementing them has proved difficult.
A large share of global oil trade is conducted in dollars. Economists warn that moving away from existing mechanisms could create significant financial risks.
As Iraq seeks to diversify its economy and reduce its dependence on oil, its financial relationship with the United States is likely to remain a subject of debate. The departure of U.S. troops may mark the end of one chapter in bilateral relations, but ties involving international finance, oil markets and the dollar’s dominance are expected to continue.
Iraq’s oil wealth may be extracted from fields in Basra, but much of the financial infrastructure supporting its circulation still runs through New York.
