Authored by James Durso via OilPrice.com,

Iraq’s leaders have a lot on their minds, stuck between Israel and Iran as the two countries veer closer to open conflict.

Washington generally has a permissive attitude to whatever Israel wants to do, so if the attackers cross Iraq the assumption will be that the Americans approved, or did not disapprove, of the attack on Iran.

Iraq is balancing between Russia and China to avoid becoming a client state, and American investment would increase Baghdad’s autonomy.

Iraq’s leaders have a lot on their minds, stuck between Israel and Iran as the two countries veer closer to open conflict.

Iraq is still recovering from the reign of Saddam Hussein, the 1980-1988 war with Iraq, decades of sanctions that followed the 1991 invasion of Kuwait, liberation by the U.S.-led “coalition of the willing” in 2003, a post-invasion reconstruction that wasted much of the $60 billion spent, and the Islamic State insurgency of 2014-2019.

The U.S.-led sanctions campaign against the Saddam Hussein regime disrupted the Iraqi economy, causing inflation to skyrocket, unemployment numbers to hit record levels, a dramatic fall in living standards, the collapse of the infrastructure, and a serious decline in the availability of public services. But it was OK, as Madeleine Albright (then U.S. Ambassador to the United Nations) informed Americans, “we think the price is worth it.” All that, plus Saddam’s crimes against his own people for almost 25 years, weigh on Iraq’s as they navigate to a peaceful, prosperous future.

And there are other issues to vex Baghdad.

There are about 2,500 U.S. troops in Iraq and most Iraqis want them to leave. (In 2020, Iraq’s parliament passed a resolution demanding the expulsion of U.S. troops after the U.S. killed Iran’s Quds Force commander, Qasem Soleimani, and Popular Mobilization Forces (PMF) leader Abu Mahdi al-Muhandis.) The governments recently announced an agreement on the Americans’ departure, though the U.S. refuses to explain how many troops will remain in Iraq and what they will be doing. The story put out for public consumption is that the goal is the “enduring defeat” of the Islamic State (IS), so will the U.S. try to declare the Islamic State is still a threat to delay withdrawing in order to support Israel against Hamas, Hezbollah, and the Iraqi militias, and bolster Washington’s clients, the Iraqi Kurds?  

And the Americans aren’t the only uninvited guests: Iraq hosts around 300,000 refugees and asylum seekers, mostly Syrian Kurds, and over 1 million Iraqis remain internally displaced by Islamic State insurgency.

The U.S. still influences Iraq by requiring a sanctions waiver for Iraqi purchases of electricity from Iraq, and it recently banned all foreign transactions in Chinese Yuan. Washington still controls the disbursement of Iraq’s dollar-denominated oil revenues from an account at the Federal Reserve Bank of New York. In a final gesture of disrespect, the U.S. made a monthly disbursement of dollars to Iraq and at one point rationed dollars, claiming it was necessary to prevent smuggling and money laundering, though the move immediately devalued the Iraqi Riyal.

The Iran-influenced militia, the PMF, is now part of Iraq’s government, but that hasn’t stayed America’s hand when it decides to kill a PMF leader. Washington damaged itself in Iraq by killing PMF leaders Abu Mahdi al-Muhandis in 2020, and Mushtaq Talib al-Saidi and Mushtaq Jawad Kazim al-Jawari in 2024. Baghdad had moved the PMF, once a private militia, into the government in 2016 (no doubt with American encouragement), so the killing of PMF leaders, who were government officials, likely increased local support the PMF and weakened Iraqi leaders, the same leaders the U.S. then expects to stand up to Iran and purge the militias. This is about as realistic as the White House eradicating every trace of the Sinaloa Cartel from the U.S. In both countries, those groups survive, and thrive, because they have some popular support, but also because government agencies and powerful people in both countries benefit from their activities.  

The Pentagon produced no “ticking bomb” rationale for the “self-defense” attacks that it always describes as “appropriate and proportionate,” and would have shouted it from the rooftops if there was.  The Pentagon killed the PMF leaders because it could, and as a way to eliminate potential future problems in the future, ignoring the here-and-now problems it caused for Baghdad.

A recent drone attack on Israel launched from Iraq killed two Israeli troops and injured 24. Iraqis are concerned about Israeli retaliation, but this is a good opportunity for the U.S. to tell Israel to stand down, and to pass information on the attackers to Baghdad so it can demonstrably clean house. Allowing Israel to strike Iraq will weaken Iraqi leaders when Washington should be doing what it can to strengthen them; standing idly by when its Israeli client attacks another country with impunity will only hurt U.S. interests.

Israel is planning to attack Iran in retaliation for Iran’s retaliation to Israel’s killing its allies in Hamas and Hezbollah and Iranian military officers, the attack on its consulate in Damascus, Syria. And, hopefully, to slow Iran’s nuclear program.  The most direct routes are through Iraq and Saudi Arabia but Iraq’s foreign minister said the expansion of war to Iran via Iraq’s airspace is “unacceptable.”

Washington generally has a permissive attitude to whatever Israel wants to do, so if the attackers cross Iraq the assumption will be that the Americans approved, or did not disapprove, of the attack on Iran. This will dilute support for the U.S., weaken U.S.-friendly politicians, and strengthen the hands of Moscow and Beijing, who won’t mind seeing the Americans entangled in the expansion of the Israel-Palestine civil war into a regional conflict (and Russian and Chinese oil investors in Iraq won’t mind the price spike.) 

Iraq’s prime minister, Mohammed Shia’ Al Sudani, visited the White House in April 2024 and his focus was the economic relationship between the U.S. and Iraq, especially because about 60 per cent of Iraq’s population is under the age of 25, and high youth unemployment (or under-employment) is a drag on the economy and a recruiting opportunity for Iran and the Islamists. 

When Americans think of Iraq in economic terms it’s all about the oil, but in November 2023 ExxonMobil, America’s biggest oil company, exited Iraq with nothing to show for a decade-long effort. (PetroChina took over ExxonMobil’s role and now owns the biggest share in the West Qurna 1 oilfield, one of the world’s biggest with estimated recoverable reserves of over 20 billion barrels.) The departure will lower the expectations of other U.S. companies, but Sudani wants to revitalize economic ties with America.  

Russia has invested over $19 billion in the Iraq energy sector with LUKOIL, Gazprom Neft and Rosneft the top investors. In early 2024, Gazprom, the Russian natural gas giant, was awarded the development contract for the Nasiriyah oil field, which holds an estimated 4.36 billion barrels.

Iraq is balancing between Russia and China to avoid becoming a client state, and American investment would increase Baghdad’s autonomy, but that’s assuming Washington doesn’t intend to do the same as Moscow and Beijing. In the absence of U.S. investment, Iraq may still be able to fund a diversified economy with oil income and that be less efficient than non-energy foreign direct investment, but Iraq has to make up for lost time since 1980, when Saddam Hussein ordered the invasion of Iran, and can’t afford to delay.

U.S.-Iraq trade has room for growth. In 2022, the U.S. exported $897 million in goods, the top product being automobiles. Iraq, in turn, exported $10.3 billion in goods, most of it crude oil.

A key economic objective of Iraq is the $17 billion Development Road, an overland road and rail link from the al-Faw port on the Persian Gulf to Europe via Turkey, that will host free-trade zones along its length. This initiative is designed to shorten travel time between Asia and Europe, potentially competing with Egypt’s Suez Canal.

The project is expected to enhance Iraq’s geopolitical position, promote regional stability, and reduce the country’s reliance on hydrocarbons by providing financial returns through increased trade. However, it faces challenges such as financing, implementation, corruption, and potential insecurity.

The Development Road may benefit from connecting to other transport projects in the area: the International North–South Transport Corridor, the ship, rail, and road route for moving freight between India, Russia, Iran, Europe, and Central Asia; and the Middle Corridor, an alternative to the Northern Corridor through Russia, which connects Southeast Asia and China to Europe via Kazakhstan, the Caspian Sea, Azerbaijan, Georgia, and Turkey.

Though the projects may be complementary, they may also compete for funding so no project is fully realized and each sees only minor improvements in the host country’s infrastructure. 

The U.S. president and the Iraqi prime minister should consider the shape of the future U.S.-Iraq relationship, which has to now been securitized, first by the Cold War, then the invasion of Kuwait and the resulting sanctions campaign, the U.S.-led invasion, and finally the Islamic State insurgency. The 2003 invasion weakened the Iraqi state and invited greater Iranian influence which the U.S. should help Baghdad dilute, though the two countries share a common religion and some tribal areas straddle the Iraq-Iran border, so Baghdad and Tehran will probably always be too close for Washington’s liking.

Where Iran is concerned, in Washington, DC it’s always 1979.  

America’s leaders’ challenge is to understand the concept of “sunk cost,” which means the approximately 4,500 U.S. military deaths, and the $2.1 trillion spent (mostly borrowed) in a war of choice is no reason to linger in Iraq, though the “enduring defeat” of the IS may give the project a new lease on life.

Iraq is the best modern example of The Meddler’s Trap, “a situation of self-entanglement, whereby a leader inadvertently creates a problem through military intervention, feels they can solve it, and values solving the new problem more because of the initial intervention. …A military intervention causes a feeling of ownership of the foreign territory, triggering the endowment effect.”  

The U.S. and Iraq need to move from a security relationship to an economic relationship, and for Iraq to be a full partner the Americans may have to surrender their stranglehold on Iraq’s oil revenues, which gives the U.S. outsized influence with a key member of the Organization of the Petroleum Exporting Countries. If Washington is reluctant to do business, Iraq can always explore joining BRICS (Brazil, Russia, India, China, South Africa), though it will have to present the organization with a rationale other than “We have hydrocarbons,” which the current members, that include Russia, Iran, Saudi Arabia, and the United Arab Emirates, have in abundance.

Iraq is a member of the China-led Asian Infrastructure Investment Bank which may be a source of assistance to diversify its economy and infrastructure to make it more attractive to BRICS, or it may get more attention from China if Beijing senses Washington is bedeviled by a lack of imagination. Iraq joined China’s Belt and Road Initiative in 2015 and has received approximately $10.5 billion as of 2021, with investments focusing on energy projects, infrastructure development, and construction.

The U.S. can help Iraq navigate its way to a prosperous future for Iraqi youth, but both countries will have to distance themselves from  Jerusalem and Tehran because indulging those two often promotes self-harm instead of cooperation and opportunity.