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...

New U.S. policy paper warns politics of exclusion is fueling instability across Syria, Iraq, and Lebanon

 


Dr. Pshtiwan Faraj | Kurdish Policy Analysis

A new policy paper argues that exclusion—not simply terrorism or regional rivalry—has become one of the Middle East's greatest drivers of conflict, displacement, and Iranian influence. The report urges Washington to make political inclusion a central condition for future U.S. assistance.

A new U.S. policy paper argues that political exclusion is driving instability in Syria, Iraq, and Lebanon and calls for American aid to be tied to inclusive governance.

A new report by the Middle East Policy Council (MEPC) argues that one of the most overlooked drivers of instability in the Middle East is not simply war, terrorism, or foreign intervention—but political exclusion. The paper contends that governments and dominant political actors across Syria, Iraq, and Lebanon have marginalized rivals, weakened state institutions, and created conditions that extremist groups and foreign powers have exploited.

Titled "Reversing the Corrosive Politics of Exclusion," the report examines three case studies and concludes that although each country experiences exclusion differently, the result is remarkably similar: weaker governance, increased displacement, reduced public trust, and greater opportunities for outside actors—particularly Iran—to expand their influence.

Syria: Centralization Instead of Inclusion

According to the report, Syria's post-war political trajectory has been marked by efforts to consolidate power rather than broaden participation.

The authors argue that minority communities—including the Druze—have struggled to secure meaningful political representation within the country's evolving political order. They contend that negotiations have frequently given way to coercion, reinforcing distrust between Damascus and local communities.

The paper also argues that episodes of severe violence against the Druze strengthened hardline voices on all sides, making political compromise increasingly difficult.

Iraq: Democratic Institutions Without Political Competition?

The report paints a different—but equally troubling—picture of Iraq.

Rather than describing Iraq as lacking democratic institutions, the authors argue that existing institutions have been captured by an entrenched political elite.

According to the report, established parties have used their influence over state institutions to limit genuine political competition, making it difficult for reformist movements, independent candidates, and emerging political actors to challenge the status quo.

The result, the paper argues, is widespread public frustration, declining trust in government, and persistent governance failures despite repeated elections.

Lebanon: State Institutions Hollowed Out

In Lebanon, the report identifies a different form of exclusion.

Rather than focusing primarily on government centralization, the authors argue that the growing influence of powerful armed non-state actors has weakened state institutions and marginalized competing political groups.

According to the paper, this imbalance has reduced the state's ability to govern effectively while contributing to Lebanon's prolonged political and economic crises.

One Pattern, Three Countries

Although Syria, Iraq, and Lebanon have distinct political systems, the report argues that they share several common outcomes.

These include:

  • Weak state institutions.

  • Increased displacement of civilians.

  • Reduced political participation.

  • Greater opportunities for Iranian influence.

  • Conditions that extremist organizations can exploit.

  • Growing public distrust in government.

The authors contend that exclusion has become a regional governance problem rather than an isolated national issue.

Why It Matters for Washington

The report argues that exclusion is not only a domestic issue for Middle Eastern governments but also a strategic challenge for the United States.

According to the authors, governments that exclude significant segments of their populations become less stable partners and require greater external security assistance over time.

Rather than responding only after crises emerge, the paper recommends addressing the political conditions that make instability more likely.

A New Approach to U.S. Assistance

Among the report's principal recommendations is a shift in how Washington measures success.

Instead of focusing primarily on military cooperation or short-term security gains, the authors recommend tying U.S. assistance to measurable progress in:

  • Political inclusion.

  • Community participation.

  • Institutional resilience.

  • Public security.

  • Social integration.

  • Economic opportunity.

The report also proposes that the U.S. State Department provide Congress with regular assessments using standardized indicators to measure whether partner governments are becoming more inclusive and resilient.

Lessons for the Kurdistan Region

Although the report does not focus specifically on the Kurdistan Region, its conclusions have broader relevance for Iraqi politics.

Debates over disputed territories, power-sharing between Erbil and Baghdad, minority representation, and political reform all illustrate how questions of inclusion continue to influence Iraq's stability.

For Kurdish policymakers, the report reinforces a broader lesson: sustainable security depends not only on military capabilities but also on inclusive governance, functioning institutions, and public confidence.

The Bigger Picture

The report ultimately argues that exclusion should be viewed as a strategic warning sign rather than merely a domestic political dispute.

Countries that concentrate power in narrow political circles may achieve short-term stability, but they often become more vulnerable to social unrest, foreign interference, institutional decay, and recurring conflict.

For the United States, the authors conclude, encouraging inclusive governance is not simply a human rights objective—it is a long-term security strategy.

Whether policymakers in Washington embrace that recommendation remains uncertain. But the report suggests that unless exclusion is addressed, the Middle East is likely to remain trapped in recurring cycles of instability, polarization, and external intervention.

Related Analysis: Basra's Dream of Becoming Iraq's Next Federal Region: Can the South Follow Kurdistan's Path?

#MiddleEast #Iraq #Syria #Lebanon #USPolicy #Iran #Governance #KurdishPolicyAnalysis

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