The Iraqi oil trap and its paradox: A rentier economy amidst geopolitical shocks

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In an economy dependent on oil exports, and with the disruption of crude oil tanker traffic through the Strait of Hormuz due to the US-Iranian war, the core of the problem lies not only in the volume of exports and the revenues generated from them, but also in how these revenues are managed, and in the amount of spending that depletes them. On September 22, 2026, Iraqi Prime Minister Ali Zaidi told The New York Times that Iraq had lost nearly $60 billion in oil revenue due to the war with Iran. For approximately two months, Iraq was unable to export 90% of its oil, while 90% of its economy depended on crude oil exports. Before June 2025, when the first round of the US-Israeli conflict with Iran erupted, the Central Bank of Iraq’s reserves had exceeded $110 billion, but by October 2026 they had fallen to less than $60 billion. Although Zaidi’s government managed to balance global polarization and geopolitical tensions during its first five months in office, the biggest problem was the i...

Iraqi factions’ cosmetic disarmament masks deep institutional limbo

 


By Dr. Pshtiwan Faraj

As the U.S. coalition prepares to leave Iraq, Baghdad's militia integration plan raises a critical question: is Iraq moving toward a unified state security system, or institutionalizing permanent dual authority?

Iraq faces a defining security transition as militia integration, U.S. withdrawal, and Iranian influence converge in a test of Baghdad's state authority.

Iraq's Security Crossroads

Iraq is approaching one of the most consequential security transitions since the defeat of ISIS.

By September 30, two major deadlines are expected to reshape the country's strategic landscape. The first is the scheduled withdrawal of the U.S.-led international coalition under the 2024 Baghdad-Washington agreement. The second is Prime Minister Ali al-Zaidi's deadline for armed factions to fully integrate into Iraq's official security institutions or face unspecified consequences.

Taken together, these developments represent more than administrative reforms. They are a test of whether Iraq can finally consolidate the state's monopoly on the use of force—or whether it will continue operating under a hybrid security system where state institutions and politically connected armed groups coexist.

Yet despite several high-profile announcements by major Shiite factions about restructuring or separating from political organizations, evidence suggests that much of the process remains organizational rather than transformational.

Cosmetic Reform or Structural Change?

Over recent months, several influential armed movements—including Saraya al-Salam, Asa'ib Ahl al-Haq, and Kata'ib al-Imam Ali—have announced plans to separate their military structures from political wings or alter their relationship with the Popular Mobilization Forces (PMF).

At first glance, these announcements appear to signal meaningful security reform.

However, the fundamental questions remain unanswered:

  • Who commands these forces?
  • Who finances them?
  • Who controls their weapons?
  • Under which legal authority do they ultimately operate?

Without clear answers, institutional restructuring risks becoming little more than administrative rebranding.

Iraq's Permanent Gray Zone

The PMF has always occupied a unique position within Iraq's security architecture.

Created in 2014 to combat ISIS and formally incorporated into the Iraqi state in 2016, the organization became part of Iraq's official security apparatus while maintaining its own command structures and political networks.

This produced what many analysts describe as dual sovereignty:

  • State institutions exercise formal authority.
  • Armed factions retain significant operational autonomy.

Instead of eliminating this ambiguity, the current reforms may simply be reshaping it.

The Payroll Paradox

Perhaps the greatest unanswered question concerns financing.

If armed factions formally leave the PMF, who pays their salaries?

If they remain funded through state budgets while operating independently, Iraq risks preserving parallel security institutions under different administrative labels.

This financial ambiguity illustrates that integration involves far more than organizational charts—it requires a unified chain of command, accountability, and budgetary oversight.

Samarra: A Warning Sign

Events in Samarra during June highlighted the fragility of Iraq's current arrangements.

A dispute over security appointments quickly escalated into an armed confrontation after rival factions rejected changes to local command structures.

Prime Minister Zaidi ultimately intervened personally to defuse the crisis.

While immediate violence was avoided, the incident demonstrated a deeper reality:

Powerful armed actors continue to possess sufficient influence to challenge—or negotiate with—the state over security appointments.

That dynamic raises questions about how fully centralized Iraq's security system has actually become.

Strategic Ambiguity as Government Policy

Rather than imposing rapid reforms, Baghdad appears to be pursuing a strategy of calculated ambiguity.

This approach offers several short-term advantages.

Domestically, it avoids direct confrontation with influential armed groups.

Regionally, it helps Iraq maintain its delicate balance between Iran and the United States.

Internationally, it allows Baghdad to demonstrate progress toward reform without provoking immediate political crises.

In effect, ambiguity has become a governing strategy rather than merely a temporary condition.


Iran, Washington, and Iraq's Balancing Act

Baghdad's security reforms cannot be understood without considering the broader geopolitical environment.

Washington continues to emphasize verifiable integration, institutional reform, and state control over weapons.

Tehran, meanwhile, seeks to preserve strategic influence through longstanding relationships with many Iraqi armed factions while avoiding direct confrontation with Baghdad.

Prime Minister Zaidi therefore faces a difficult balancing act.

Moving too quickly could alienate powerful domestic actors aligned with Iran.

Moving too slowly risks undermining confidence among Iraq's international partners.

This strategic dilemma explains why gradual restructuring has so far taken precedence over comprehensive disarmament.

Axis of Resistance


What Happens After the Coalition Withdrawal?

The departure of coalition forces does not necessarily eliminate Iraq's security challenges.

Instead, it may shift greater responsibility onto Iraqi institutions while testing whether existing command structures are capable of operating independently.

Several questions will define Iraq's next phase:

  • Can Baghdad establish a unified national chain of command?
  • Will political factions accept reduced military autonomy?
  • Can security reform proceed without destabilizing Iraq's internal political balance?
  • Will external actors continue to shape Iraq's security architecture after coalition withdrawal?

The answers will determine whether Iraq enters a period of institutional consolidation—or prolonged strategic uncertainty.

Strategic Implications

The militia integration process is no longer simply a domestic administrative issue.

It has become a regional geopolitical question with implications for:

  • U.S.-Iraq relations
  • Iran's regional influence
  • Counterterrorism cooperation
  • Investment confidence
  • State sovereignty
  • Regional security architecture

For now, Baghdad appears committed to managing these competing pressures through incremental reform rather than dramatic confrontation.

Whether that strategy produces lasting stability remains uncertain.

Conclusion

Iraq's security transition is not defined by public announcements of militia restructuring but by whether authority, financing, and the legitimate use of force ultimately become unified under the Iraqi state.

If current reforms remain largely symbolic, Iraq risks institutionalizing a permanent system of parallel security structures.

If, however, Baghdad can gradually transform ambiguity into genuine institutional integration, the country could emerge from the coalition era with stronger national institutions and greater strategic autonomy.

The coming months—particularly around the September deadlines—may determine which path Iraq ultimately follows.

#Iraq #PMF #PopularMobilizationForces #AliAlZaidi #Security #MiddleEast #Iran #UnitedStates #Geopolitics #StateBuilding #RegionalSecurity #MilitaryReform #WarAnalysis #KurdishPolicyAnalysis

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