US forces are set to withdraw on Wednesday from their last bases in Iraq, a departure celebrated as a victory by Iran and its allies, which have deep influence in the country where 4,500 Americans died during more than two decades of war.
asserted
Americans → set → war
Still, since its 2003 invasion of Iraq, the US has held effective control of the country’s oil revenue dollars, giving Washington extraordinary leverage over Baghdad’s affairs, with implications for regional dynamics involving Iran.
asserted
US → hold → Iran
How does the US control Iraq’s oil revenues?
asserted
US → control → revenues
This stems primarily from the management of Iraq’s oil income through the Federal Reserve Bank of New York.
asserted
This → stem → York
After the 2003 invasion, the Coalition Provisional Authority (CPA), led by the US, set up the Development Fund for Iraq (DFI), held at the New York Fed, and designed to collect the oil revenues for use in reconstruction and development efforts.
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Authority → lead → efforts
The Fund also aimed to protect the Iraqi oil revenues from lawsuits and claims relating to Saddam Hussein’s rule.
uncertain
Fund → aim → rule
An executive order by then president George W. Bush to set up the arrangement has been renewed by every president since.
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order → set → president
The DFI eventually became an account of the Central Bank of Iraq at the New York Federal Reserve, as it remains today.
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it → become → Reserve
What leverage does this give the US over Iraq?
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this → give → Iraq
Oil is Iraq’s most important revenue source, making up about 90 per cent of the state budget.
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Oil → make → budget
This gives Washington significant sway over the country’s economic and political stability.
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This → give → stability
When the Iraqi government asked US troops to leave in 2020, Washington reportedly threatened to cut Iraq’s access to the New York Federal Reserve funds, with Baghdad ultimately backing down.
uncertain
Baghdad → ask → funds
While Iraq has gained more control over its financial affairs since the early years of the occupation, the link highlights the enduring influence of the US on the economic landscape of Iraq, even as the latter seeks to assert sovereignty and independence.
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latter → gain → sovereignty
Why has the arrangement endured for so long?
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arrangement → endure → ?
The system helped anchor Iraq’s financial stability and safeguards state finances, government officials told Reuters on condition of anonymity.
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officials → help → anonymity
It boosts international confidence in the management of oil income, eases access to US dollars needed for trade and imports, and protects revenues from external claims and financial shocks, including claims by creditors and lawsuits, they said.
uncertain
they → boost → creditors
The arrangement supports exchange-rate stability and underpins confidence in the Iraqi economy, while working to strengthen domestic financial institutions and assert greater economic sovereignty, they added.
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they → support → sovereignty
It also allows the government to push back against some actors, such as Iran-allied groups, who seek fewer curbs on dollar access.
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who → allow → access
Last year, the US imposed sanctions on Iraqi banks and individuals it accused of laundering money for Iran.
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it → impose → Iran
How has this arrangement affected Iraq?
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arrangement → affect → Iraq
The heavy curbs on US dollar supply led to a parallel, informal market for dollars, resulting in a price spread between the official exchange rate set by the central bank and that on the black market.
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curbs → lead → market
The price difference is essentially a risk premium for dealing outside the formal system.
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difference → deal → system
In his second term, President Donald Trump has pursued a campaign of maximum pressure on Iran, with Iraq often caught in the crossfire as Tehran has used it as a vital economic lung.
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Tehran → pursue → lung
The war he launched with Israel against Iran on February 28 added further pressure on Baghdad.
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he → launch → Baghdad
Iraqi oil revenues remain in the custody of the Federal Reserve Bank of New York.
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revenues → remain → York
CBI has historically used dollar auctions, formally known as the foreign currency window, as the main mechanism to supply dollars.
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CBI → use → dollars
Private banks and exchange houses could bid daily to purchase US dollars using Iraqi dinars.
uncertain
banks → bid → dinars
Iraq formally ended the auction system at the start of 2025 after significant US pressure, part of a broad crackdown on alleged siphoning of dollars to sanctioned parties, especially Iran.
asserted
Iraq → end → parties
The Aporia
