IRAQ’S ROAD OUT OF TEHRAN’S WAY

Iran spent 20 years making Iraq its road. The war made that road unaffordable. Baghdad is building exits now, and every one of them runs away from Iran.

Iraq’s prime minister received the coffin of Iran’s supreme leader at Najaf airport on 7 July, met the US president in Washington on 14 July, and signed 48 agreements worth more than $60bn on 17 July. The agreements cover oilfields, power generation, infrastructure and a crude pipeline running to the Mediterranean through Syria. He holds office because the Iran-aligned bloc that still controls the oil and finance ministries nominated him. Iraq is not changing alliances. It is being drawn into a regional effort to reduce the value of Iranian geography, and it has less capacity to refuse than any other state involved.

The veto

Washington selected the prime minister. On 24 January the Shia bloc that controls parliament nominated a former prime minister who had served two terms. The US rejected him publicly within 3 days and said financial support would end. The Treasury had already frozen the physical dollar shipments flown from New Jersey to the Central Bank of Iraq, suspended the oil revenue payments held at the New York Federal Reserve, and halted security assistance. Iraq depends on those transfers to convert oil sales into spendable currency, so suspending them stops the state paying salaries rather than merely signalling displeasure.

The channel Washington used was one it built. The occupation authority created the Central Bank’s foreign currency auction in 2004 to stabilise the dinar. The auction sells dollars from oil revenue to Iraqi banks against import documentation, which made it the main route through which Iraq’s political class converted state revenue into private wealth and through which sanctioned Iranian trade obtained hard currency. Documents from the Iraqi parliament’s finance committee record billions smuggled through it between 2006 and 2014. The mechanism designed to stabilise Iraqi currency became Iran’s most reliable dollar supply inside Iraq, and in 2026 the US suspended it long enough to determine who formed the government.