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US forces are set to leave their last bases in Iraq on Wednesday. Iran and its allies have celebrated the withdrawal as a victory.
The departure comes more than two decades after the US invasion of Iraq. About 4,500 Americans died during the long conflict.
Despite the troop withdrawal, Washington still holds significant influence over Iraq’s oil revenues.
The United States manages key aspects of Iraq’s oil income through the Federal Reserve Bank of New York. This arrangement gives Washington considerable financial leverage over Baghdad.
The system dates back to the 2003 US invasion.
The US-led Coalition Provisional Authority created the Development Fund for Iraq after the invasion. The fund operated through the New York Federal Reserve.
The authority designed the fund to collect Iraq’s oil revenues. It intended the money for reconstruction and development.
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The arrangement also protected Iraqi oil revenues from legal claims linked to Saddam Hussein’s rule.
Then-US President George W. Bush established the system through an executive order. Every US president since then has renewed the order.
The Development Fund later became an account belonging to Iraq’s central bank at the New York Federal Reserve. The arrangement remains in place.
Oil provides about 90% of Iraq’s state revenue. Control over the flow of oil dollars therefore gives Washington significant influence over Iraq’s economy.
Iraq asked the United States to withdraw its troops in 2020. According to reports, Washington threatened to restrict Baghdad’s access to its Federal Reserve funds.
Iraq eventually backed down from the demand.
Baghdad has gained greater control over its finances since the early years of the US occupation. However, the financial link with Washington still gives the United States considerable influence.
The arrangement also affects Iraq’s efforts to strengthen its economic sovereignty.
Iraqi officials say the system helps protect the country’s financial stability.
The arrangement also gives international markets greater confidence in Iraq’s management of oil revenues. It helps Baghdad access US dollars for imports and international trade.
The system also protects Iraq’s oil income from lawsuits, creditors and other external claims.
Officials say the arrangement supports exchange-rate stability. It also strengthens confidence in Iraq’s financial system.
At the same time, the system gives Baghdad and Washington tools to limit dollar access to groups accused of financial wrongdoing.
Last year, the United States sanctioned Iraqi banks and individuals. Washington accused them of laundering money for Iran.
US restrictions on dollar flows have contributed to a parallel currency market.
That market has created a gap between Iraq’s official exchange rate and the rate available on the informal market.
The difference reflects the added risk of conducting transactions outside the formal financial system.
President Donald Trump has also increased pressure on Iran during his second term. Iraq has faced pressure from both sides because of its economic and political ties with Tehran.
The conflict between Israel and Iran that began on February 28 added further pressure on Baghdad.
Iraqi oil revenues remain in an account at the Federal Reserve Bank of New York.
The Central Bank of Iraq historically used dollar auctions to supply US currency to the domestic market.
Under the system, private banks and exchange houses could bid for dollars. They paid for the currency using Iraqi dinars.
Iraq ended the auction system at the start of 2025.
The move followed pressure from Washington. US authorities had raised concerns about the alleged diversion of dollars to sanctioned entities, particularly those linked to Iran.
Despite the end of the auction system, Iraq’s oil revenues remain tied to the financial arrangement with the New York Federal Reserve.
[…] How the US controls Iraq’s oil revenues after troop withdrawal […]