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How the United States Retains Leverage Over Iraq’s Oil Revenues
Iraq earns most of its government money by selling oil.
That money is kept in an account at the Federal Reserve Bank of New York.
The system was created after the United States invaded Iraq in 2003.
It was meant to protect Iraq’s money and help pay for rebuilding.
Because Iraq needs access to these funds and to United States dollars, Washington has influence over Baghdad.
Officials say the arrangement helps protect money and keep Iraq’s currency stable.
Critics point to limits on dollars that helped create an informal market with different exchange rates.
Iraq ended its main dollar auction system in early 2025 after pressure from the United States.
Iraq’s oil revenues remain held in an account at the Federal Reserve Bank of New York.
The arrangement began after the 2003 United States invasion through the Development Fund for Iraq.
Oil provides about 90% of Iraq’s state budget, giving the United States significant economic leverage.
Supporters say the system protects revenues, stabilizes the exchange rate, and facilitates access to dollars.
Restrictions on dollar access contributed to a parallel market, while Iraq ended its dollar auction system in early 2025.
- Who
- The United States, the Iraqi government, the Central Bank of Iraq, and the Federal Reserve Bank of New York.
- What
- Iraq’s oil revenues are managed through an account at the Federal Reserve Bank of New York, giving Washington influence over Iraq’s finances.
- Where
- Iraqi oil revenues are held at the Federal Reserve Bank of New York, while the financial effects are felt in Iraq.
- When
- The arrangement began after the 2003 invasion and remained in place as of the report dated September 30; Iraq ended its dollar auction system at the start of 2025.
- Why
- The system was created to protect oil revenues from claims and support reconstruction, financial stability, dollar access, and confidence in Iraq’s economy.
Arguments Supporting the Arrangement
Concerns About United States Leverage
Financial stability
Arguments Supporting the Arrangement
Iraqi officials say holding the revenues through the United States financial system protects state funds from lawsuits, creditors, and financial shocks.
Concerns About United States Leverage
The arrangement leaves Iraq dependent on access controlled through a United States institution, limiting its financial independence.
Dollar access and oversight
Arguments Supporting the Arrangement
United States oversight can restrict money laundering and prevent dollars from reaching sanctioned parties, including groups linked to Iran.
Concerns About United States Leverage
Restrictions on dollar access contributed to an informal market and a gap between official and black-market exchange rates.
Political influence
Arguments Supporting the Arrangement
The system gives Baghdad tools to resist actors seeking fewer controls on dollar access.
Concerns About United States Leverage
The reported threat to restrict Iraq’s access to its funds shows how Washington can use oil-revenue management as leverage over Iraqi policy.
Key facts
- Main revenue source
- Oil accounts for about 90% of Iraq’s state budget.
- Custodian
- The Federal Reserve Bank of New York holds Iraq’s oil revenues.
- Origin
- The Coalition Provisional Authority established the Development Fund for Iraq after the 2003 invasion.
- Legal basis
- An executive order signed by President George W. Bush created the arrangement and has been renewed by successive presidents.
- Dollar auctions
- Iraq formally ended its foreign-currency auction system at the start of 2025.
- Reported consequence
- Restrictions on dollar supply contributed to a parallel market and a gap between official and informal exchange rates.
- Stated purpose
- Officials say the arrangement protects revenues, supports exchange-rate stability, and improves access to dollars for trade and imports.
Sources
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