US Uses Control of Iraqi Oil Funds as Political Leverage

The United States exercises significant control over the Iraqi economy through a financial system established after the 2003 invasion. Under this arrangement, Iraqi oil revenues are deposited into accounts at the Federal Reserve in New York, a mechanism originally designed to protect funds from creditors and support reconstruction.

Washington now utilizes this oversight as a political tool to pressure Baghdad to limit the influence of Iran and Tehran-aligned armed groups. In April, the U.S. demonstrated this leverage by blocking a $500 million cash shipment of Iraq's own oil revenues. While Iraq remains dependent on the system due to the dominance of the dollar in oil pricing and unsettled external debts, the arrangement has created internal friction in Baghdad.

Former parliamentary Finance Committee member Muayen al-Kadhimi condemned the arrangement, stating that the U.S. decision to freeze or delay foreign currency entitlements represents a serious violation of Iraqi financial and political sovereignty. Conversely, Oil Minister Basem Mohammed Khudhair described the dialogue between the two governments as very positive, noting that the U.S. has provided support for Iraq's economic and political success. Some Iraqi economists argue for diversifying sovereign accounts in Europe and Asia, while others maintain that U.S. oversight prevents domestic corruption and the illegal smuggling of funds to Iran.