The U.S. Has More Leverage in Iraq Than It Thinks

If U.S. forces leave Iraq by 30 September 2026, Washington should view the departure not as the end of its relationship with Baghdad but as an opportunity to redefine it. The U.S. will retain influence in Iraq, but it will have to exercise that influence differently. America’s challenge will be transitioning from control to influence.For two decades, the military presence gave Washington an extraordinary degree of leverage over Iraq. Once U.S. troops leave, leverage will diminish, but the U.S. will retain important instruments of power: the U.S. Dollar-based financial system, sanctions, defense sales, intelligence cooperation, diplomatic influence, investment, technology, and access to Western markets. But will Washington use those instruments to influence Iraqi choices or try to use them to attempt to control Baghdad?The latter approach will probably fail.The post-withdrawal relationship should become less securitized and more broadly strategic. Washington can continue providing defense assistance and counterterrorism cooperation, particularly against an Islamic State resurgence, which will remain important.But economics may become more important. Iraq needs American and Western technology and investment in energy, electricity, infrastructure, banking, transportation, and other sectors. America can maintain its influence through commercial relationships rather than military occupation. This would be consistent with the 2008 U.S.–Iraq Strategic Framework Agreement, which envisioned cooperation extending beyond defense into diplomacy, economics, energy, education, and other fields.American financial power will remain when American troops leave. Iraq's oil revenues are integrated into the international dollar system, and Iraqi banks depend on access to dollar transactions and correspondent banking.Washington demonstrated this leverage in 2026 by restricting physical-dollar shipments to Iraq amid concerns about Iran-backed militias and illicit financial activity. The restrictions were eased after Baghdad took steps involving financial controls, banking reform, and militia disarmament. Will Washington stop dollar shipments if the militias defy the 30 September mandate?This gives Washington a powerful post-withdrawal instrument. It can restrict access to the international financial system, sanction banks and individuals, and pressure Iraqi institutions to prevent money laundering, sanctions evasion, and militia financing.But there is a distinction between protecting the integrity of the U.S. Dollar system and using the dollar to dictate Iraqi political decisions. The former is legitimate and sustainable, but the latter could encourage Baghdad to seek alternatives to the dollar.A smarter policy is conditional access: Iraqi oil revenues remain Iraqi revenues, but Iraqi banks seeking access to international finance must meet international standards for transparency, anti-money-laundering enforcement, and sanctions compliance.The most complicated issue will be Iraq’s Iran-aligned militias, “the resistance” in the eyes of many Iraqis.Washington should support the principle that all armed formations must answer to the civilian government and the military chain of command, but it should be cautious about demanding that Baghdad disarm every militia immediately.One thing Iraqis appear to agree on is that the militias will not start surrendering weapons to Baghdad until after 30 September. Hopefully, the American embassy is keeping the White House apprised of this, so we do not wake up on 1 October to a storm of angry tweets.Many militias are not simply armed gangs. They have political parties, parliamentary representation, businesses, social networks, and some are officially part of Iraq’s security structure. Trying to eliminate them simultaneously could start a civil war, triggering political fragmentation, economic deterioration, and Iranian intervention.Consequently, 30 September should be a political milestone rather than a deadline for collecting every militia weapon, though it is odd to hear Americans complaining about private ownership of firearms. Washington should insist that progress toward state control be genuine and irreversible while allowing Baghdad to determine the pace and mechanics.The objective should be transformation instead of immediate demobilization. Iraqis remember the violent consequences of America’s heedless decision in 2003 to suddenly disband Iraq’s army. Many of the cashiered soldiers joined the resistance against the U.S. -led coalition, and their officers helped organize the Islamic State. Militia personnel who accept Baghdad’s authority can join the military or police, while independent chains of command, unauthorized military operations, and heavy weapons gradually disappear, though the economic enterprises may become assets of allied political parties.Disarmament needs specific conditions. From Northern Ireland to Bosnia, successful militia transitions required three items: a strong state, political and economic incentives, and voluntary disarmament. Iraq lacks these conditions, making externally imposed disarmament a potential trigger for civil conflict.Several militias recently proposed putting the heavy weapons into storage, but under their control, and refraining from military activity for two years; Baghdad rejected the offer and negotiations are ongoing. Also proposed was the demobilization of the Kurdish militia, the Peshmerga, but Washington will probably oppose that as the armed Kurds are a useful “thumb on the scale” in Iraq and regionally, and Iraq’s constitution allows the Kurdish Regional Government to establish and organize its own internal security forces. (However, in Fiscal Year 2027, the Pentagon has proposed slashing funding for Kurdish security forces.)Washington should also avoid demanding that Iraq choose between the United States and Iran. Iraq's geography, history, religious ties, and economic relationships make a substantial relationship with Iran inevitable. The U.S. administration’s “Operation Economic Outcast” is aimed at Iran but will probably hit Iraq, which cannot afford more economic disruption as it is still recovering from three wars and decades of economic sanctions. And like Russians in the 1990s, many Iraqis may associate the Americans’ gift of “democracy” with disorder and privation.An Iraqi politician can be pro-Iran. Iraq can trade with Iran. Iraq can buy Iranian electricity. None of those things threaten American interests and are more about Washington’s grievances with Tehran than Iraqi sovereignty.The red line should instead be whether Iranian influence operates through Iraqi politics or through an Iranian-backed parallel military structure inside Iraq. A mature Washington will tolerate some Iranian influence while opposing Iranian control over Iraqi armed forces, borders, or illicit financial networks.American financial leverage can also be used to strengthen rather than undermine Iraqi sovereignty.Instead of telling Baghdad, "Disarm by 30 September or face punishment," Washington could establish a positive relationship between Iraqi institutional performance and American cooperation.Greater control over armed groups, stronger banking regulation, and protection against sanctions evasion could produce greater American investment, defense cooperation, and access to financial markets. Conversely, militia attacks, money laundering, and systematic sanctions evasion could trigger targeted sanctions and financial restrictions.The real transition is from control to influence.The temptation for Washington to hang on to control will be considerable, especially after US$3 trillion and over 4,400 dead troops. After decades of military involvement, American policymakers may find it difficult to accept that Iraq will dare make decisions Washington dislikes. But the wise understand external pressure rarely works in Iraqi politics where influence comes through incentives, alignment of interests, and respect for internal balances, not coercion.Iraq 2026 is not Iraq 2011. The Iraqi elite today increasingly see a strategic partnership with the U.S. as essential, while politics is shifting from identity-based to issue-based competition, making sectarian polarization less attractive and the U.S. more appealing through investment, technology, and prosperity.The United States possesses enormous leverage: dollars, sanctions, weapons, intelligence, investment, and diplomatic power. It will be tempting to use those tools to continue exercising something approaching control, but if the Americans learned anything from their three-decade misadventure in Mesopotamia, they know controlling Iraq is easier said than done. If it’s any consolation, though, King Faisal I of Iraq (1921-1933) lamented, “In this regard and with sadness, I have to say that it is my belief there is no Iraqi people inside Iraq…There are no common grounds between them.”. Before the invasion in 2003, President George Bush declared, “Freed from the weight of oppression, Iraq's people will be able to share in the progress and prosperity of our time.” It is time to follow through on those fine words and make a strong relationship with America attractive rather than try to make Iraqi sovereignty conditional on obeisance to Washington.The winning formula is: Success = U.S. withdrawal + Iraqi sovereignty + strong bilateral defense cooperation + foreign direct investment + discreet financial leverage + Iraqi-led militia reform.Washington should not try to eradicate Iranian influence in Iraq. It should seek something better: an Iraq strong enough to maintain relations with both Washington and Tehran, but sovereign enough that security decisions are made in Baghdad. That will be difficult for some in Washington still captive of the “meddler’s trap,” and who feel entitled to dictate Iraq’s future. Ironically, accepting less overt control may be the best way for Washington to preserve long-term American influence. However, the open-ended U.S./Israeli war on Iran may be the interventionists’ last opportunity to make Iraq a weapon against the Islamic Republic, as many in Washington will always prioritize the Iran target over productive relations with Iraq.Iraq is a strategic opportunity for America. Despite growing anti-American sentiment in the region, Iraq is moving closer to the U.S. orbit and making progress on corruption and rule of law for the first time. This opportunity may not come again; Iraq historically can move quickly if the leaders – in Baghdad and Washington - are up to the task.By James Durso for Oilprice.comMore Top Reads From Oilprice.comU.S. Threatens to Ground Iranian Airlines WorldwideOil Prices Reverse Course as Traders Watch US-Iran DiplomacyNorway's Arctic Oil Pitch Falls Flat in Brussels