Scope: This report examines how Iraq’s oil-revenue architecture, access to dollar payments, Iranian aviation links and contested control over armed organisations shape Baghdad’s practical sovereignty, with an assessment horizon extending to October 2031.

Executive Summary / BLUF

Iraq’s principal vulnerability is the interaction between dependence on external financial infrastructure and incomplete control over domestic coercive power.

The Central Bank of Iraq’s financial statements document the establishment of an Iraq 2 account at the Federal Reserve Bank of New York for oil receipts and other specified funds; the arrangement establishes financial dependence without transferring Iraqi ownership to Washington. Financial Statements, 31 December 2020 — Central Bank of Iraq — 2020, Note 39. cbi.iq

The IMF’s July 2025 assessment placed 2024 oil revenue at 36.0% of GDP, against total revenue and grants of 39.3%, illustrating the concentration of the fiscal base. IMF Executive Board Concludes 2025 Article IV Consultation with Iraq — IMF — Jul 2025. imf.org

On 1 October 2026, Treasury explicitly placed Najaf pilgrimages, its pressure campaign against Iran and militia demilitarisation within the same diplomatic discussion. READOUT: Secretary of the Treasury Scott Bessent’s Meeting with Iraq Minister of Foreign Affairs Fuad Hussein — U.S. Department of the Treasury — Oct 2026. U.S. Department of the Treasury

The strategic implication is that Baghdad needs both dependable lawful payments and enforceable Iraqi command authority; progress in either domain remains vulnerable to failure in the other.

The decisive unresolved record is the operative Najaf aviation authorization, including its beneficiaries, duration, conditions and grounds for suspension.

Iraq’s Three-Zero Dinar Plan: What It Really Means

Iraq’s sovereignty depends on what survives the withdrawal

The conclusion of the coalition mission in Iraq transfers responsibility to Baghdad without resolving the constraints that govern its decisions. The government must preserve financial access, administer aviation restrictions, subordinate armed organisations and sustain infrastructure whose financing creates obligations long before it delivers reliable services. The governing contradiction is that external assistance can strengthen Iraqi institutions while also increasing their exposure to creditors, licensing authorities and foreign suppliers. NATO Mission Iraq, the European Union Advisory Mission in Iraq and European investment programmes offer instruments for managing that transition, but none supplies the authority to enforce an Iraqi decision. Sovereignty will expand only when Baghdad can maintain payments, security orders and essential services through political disagreement, rather than renegotiate the conditions of their operation whenever pressure rises.

Withdrawal transfers responsibility faster than institutions acquire capacity

The UK Ministry of Defence’s announcement of 30 September 2026 confirmed the conclusion of the Global Coalition’s military mission and the departure of its forces from Iraq. Germany’s government recorded the end of its deployment after Baghdad withdrew consent. These decisions demonstrate Iraqi authority over foreign military presence, but the responsibility they transfer encompasses functions that require trained personnel, maintained equipment and dependable operational coordination. Ending a deployment establishes who may remain; it does not establish what the institutions assuming responsibility can deliver.

NATO Mission Iraq illustrates the distinction. Its advisory mission continued after personnel relocated from Baghdad to Allied Joint Force Command Naples in March 2026. Institutional assistance therefore survived a change in physical presence, while its contribution remained bounded by a non-combat mandate. Baghdad’s task is to turn advice into Iraqi procedures that persist when advisers are distant, personnel change or a regional crisis interrupts access.

The Kurdistan Regional Government’s Ministry of Peshmerga Affairs made the protection problem explicit in its statement of 28 September 2026: withdrawal would occur without an alternative air-defence system, and protection of regional airspace remained a federal responsibility. The operational consequence is a requirement for warning coverage, communication and authorised response across federal and regional institutions. Sovereignty exercised through withdrawal must now be demonstrated through protection.

The investment totals conceal different kinds of obligation

The financial scale of available programmes is substantial, but their figures describe different stages of commitment. The World Bank approved US$900 million for the Iraq Transport Economic Corridors project on 4 June 2026. The UK–Iraq joint statement of January 2025 announced an export package of up to £12.3 billion. Italy’s Foreign Ministry reported in May 2025 that SACE had signed a €1 billion export-credit framework with the Trade Bank of Iraq the previous year. A financing approval, an announced package and an export-credit framework are distinct instruments; none can be counted automatically as completed investment.

TotalEnergies describes the Gas Growth Integrated Project as an investment of approximately US$10 billion, with consortium interests of 45% for TotalEnergies, 30% for Basrah Oil Company and 25% for QatarEnergy. Its announced components include a 1 GWac solar facility, first-phase seawater treatment capacity of 5 million barrels of water per day and a Ratawi production target of 210,000 barrels of oil per day from 2028. These parameters establish the project’s intended scale. Commissioning records, connected operation and sustained output determine its contribution to Iraqi resilience.

European advisory funding belongs to another category. Council Decision (CFSP) 2026/902 established a €79,078,620.21 financial reference amount for EUAM Iraq covering 1 May 2024 to 31 October 2026. Germany’s development ministry identifies a €117.7 million commitment made in July 2024. Neither amount represents an October 2026 annual expenditure figure. Baghdad’s financing decisions require these distinctions because debt service, project delivery, programme expenditure and maintenance obligations enter the public accounts through different channels.

Procurement strengthens sovereignty only when services keep operating

The Gas Growth Integrated Project connects gas recovery, electricity generation, seawater supply and oil-field development. Its value lies in those operating relationships: recovered gas must reach power plants, generated electricity must enter a functioning grid, and treated water must reach the fields it serves. An interruption at a connection point can leave completed equipment unable to deliver its intended service. The Iraqi state acquires resilience when it can operate and maintain the system, rather than simply accept its individual assets.

The same constraint applies to the Al-Qayyarah airbase rehabilitation announced in the January 2025 UK–Iraq package. Rehabilitation can support protection, but operational coverage also requires sensors, communications, authorised engagement procedures, personnel and sustainment. Financing a facility creates a procurement obligation; fielding a dependable capability requires an institutional system around it. Contracts that omit that system can leave Baghdad paying for assets whose availability remains dependent on emergency expenditure or supplier intervention.

The Iraq Transport Economic Corridors project offers a more disciplined implementation model by coupling physical investment with institutional strengthening, performance-based maintenance and evaluation of pilot results before subsequent expansion. Its significance extends beyond roads: it makes continued serviceability part of the intervention. That principle should govern Iraqi procurement more broadly, with funding released against verified delivery and credible operating arrangements rather than the political visibility of contract signatures.

Iraqi law provides authority that bargaining can still weaken

Popular Mobilisation Commission Law No. 40 of 2016 already places the organisation within the Iraqi armed forces and links it to the commander-in-chief. The Justice Ministry’s account identifies military-law obligations, hierarchy, separation from political affiliations and central authority over redeployment. The institutional problem is therefore the execution of defined obligations. A weapons transfer has limited strategic meaning if an organisation retains the command, personnel and procurement channels required to recover autonomous capability.

Articles 9 and 78 of the Iraqi Constitution establish civilian authority and the prime minister’s command responsibility. Their practical force emerges when a commander accepts replacement, a unit obeys a disputed deployment order or investigators obtain access to facilities and records. A settlement that requires a new political bargain for each such decision preserves coordination while leaving command contingent. Baghdad’s authority becomes more dependable when agreed procedures remain enforceable against an organisation that dislikes the outcome.

Aviation exposes an equivalent gap between political agreement and administrative authority. Treasury’s September 2026 action against Iranian airlines widened the sanctions problem, while its readout of the October meeting with Iraq’s foreign minister confirmed discussion of pilgrimage access to Najaf. Under OFAC’s licensing framework, the scope of an authorisation determines which transactions can proceed. Iraqi landing permission cannot by itself resolve the treatment of fuel, handling, payments or designated counterparties. The government needs a common implementation instruction that airport operators and service providers can apply without improvising foreign policy.

Financial reform carries the same requirement. The IMF’s July 2025 assessment called for restructuring state-owned banks, stronger governance and digital infrastructure, and improved anti-money-laundering controls. These measures matter because a supervised institution with reliable records can address a compliance inquiry and preserve legitimate transactions. Expanding the number of intermediaries without correcting ownership, capital and control weaknesses would reproduce the vulnerability across more channels.

European support works through mandates and contracts, not a common guarantee

Italy’s Defence Ministry statement of 29 September 2026 separated military withdrawal from continuing bilateral training and an EUAM contribution. Its commercial interests, including Eni’s Al-Zubair operations and the SACE–Trade Bank of Iraq framework, create reasons to support reliable infrastructure and contractual execution. Italy can combine technical assistance, export finance and institutional training, but each intervention needs an Iraqi owner capable of maintaining the resulting asset or procedure.

France’s exposure through the Gas Growth Integrated Project gives it a direct interest in connected energy delivery. Its February 2026 diplomatic statement also identified regional transport, water and electricity cooperation as subjects for a prospective Baghdad Conference. That channel can help clarify commitments and contain disputes; implementation still requires responsible agencies and enforceable arrangements. Germany, following the end of its deployment, retains civilian instruments addressing employment, administration, climate and energy. These can strengthen the Iraqi capacity to absorb investment without presuming a continuing military presence.

The United Kingdom’s January 2025 partnership combines export finance, infrastructure announcements and intended defence cooperation. UK statutory guidance nevertheless requires applicable licensing for military goods and technology. EUAM Iraq operates under its own Council mandate, while European transactions involving Iran also face the EU restrictions reintroduced in September 2025. Europe can help Baghdad build usable institutions, but its instruments do not supply a collective guarantee of financial access or exemption from other jurisdictions.

The EU–Iraq Partnership and Cooperation Agreement provides an established forum for coordinating that support. Baghdad should use it to require a common programme register distinguishing grants, loans, export-credit arrangements, advisory mandates and operating costs. Without such coordination, separate partners can each fulfil a contract while leaving Iraqi ministries to manage incompatible procedures and unfunded obligations.

The next two years will allocate the cost of unfinished decisions

Between October 2026 and October 2028, the decisive test will be whether Baghdad converts the coalition transition and investment programmes into operating results. The Iraq Transport Economic Corridors project needs implementation and maintenance records; the Gas Growth Integrated Project needs verified commissioning and delivery; security reform under Law No. 40 needs evidence that contested decisions are enforced. Expansion before those tests would increase obligations faster than the government’s capacity to administer them.

The IMF’s May 2025 recommendations identify the fiscal transmission of failure: weak collection, inefficient expenditure and deficient public financial management restrict the resources available for productive investment. If new facilities lack maintenance, the cost falls on the treasury through emergency spending and on households through interrupted services. If financial reform disrupts legitimate commerce without establishing usable alternatives, importers, suppliers and employers bear the immediate burden. If constitutional command remains subject to repeated accommodation, the government carries responsibility for security without dependable control over its execution.

The choice embodied in the September 2026 withdrawal is greater Iraqi responsibility. Its cost will be determined by whether that responsibility is matched by enforceable procedures, funded capability and sustained services. Baghdad can widen its freedom of action over the next two years by making those functions reliable; otherwise, Iraqi taxpayers, businesses and communities will finance a transition whose political declaration has advanced further than its institutional delivery.

Iraq After the Militias: State Control and Growth

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Navigational Index

Pillar I — Oil Revenue and the Financial Boundaries of Sovereignty

Chapter 1 — From the Development Fund to Iraq 2
The institutional history of oil-revenue custody, Iraqi ownership and the distinction between historical arrangements and current authority.

Chapter 2 — How Dollar Access Transmits Political Pressure
Correspondent banking, transfer screening, physical currency, trade finance and the fiscal consequences of interrupted access.

Chapter 3 — The Oil-Funded State and Its Capacity to Absorb Pressure
Revenue concentration, public expenditure commitments, liquidity management and the limits of financial diversification.

Pillar II — Aviation, Armed Power and Iraqi Decision Authority

Chapter 4 — Najaf and the Administration of Sanctions
Pilgrimage access, airline designations, licensing authority and the implementation burden borne by Iraqi institutions.

Chapter 5 — Armed Organisations and the Meaning of State Control
Command authority, political accommodation, sanctions exposure and the difference between weapons transfers and effective institutional subordination.

Chapter 6 — Security Transition and Relations with Iran
Security cooperation, external influence, regional exposure and the institutional requirements of an Iraqi-led settlement.

Pillar III — Institutional Options and the Five-Year Sovereignty Outlook

Chapter 7 — Pathways to Financial and Security Resilience
Potential settlements, disruption mechanisms and observable evidence of durable reform.

Chapter 8 — European Interests and Support for Iraqi Institutions
Separate treatment of Italy, France, Germany, the United Kingdom and the European Union, confined to material interests and feasible policy instruments.

Chapter 9 — Courses of Action and Final Net Assessment
Authority, implementation burden, time to effect, reversibility and the conditions under which Baghdad can widen its freedom of action.

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Escalation in the Levant: Structural Re-Alignment in Iraq

Master Abstract

Financial sovereignty depends on usable access

The central question is whether Baghdad can convert ownership of national resources into reliable authority over their use. Iraq’s oil income can belong to Iraqi institutions while the infrastructure required to receive, transfer and spend it remains subject to rules enforced outside Iraq. The Central Bank’s 2020 financial statements record that Development Fund for Iraq balances were transferred to its New York Fed account on 27 May 2014, following the expiry of the relevant American protection arrangement. They also describe the establishment of Iraq 2 for oil-shipment receipts, recovered amounts and frozen balances, with a corresponding Ministry of Finance account. This provides a documentary basis for the financial relationship, although it does not establish the complete account agreement or every operational condition applicable in October 2026. Financial Statements, 31 December 2020 — Central Bank of Iraq — 2020, Note 39, printed pp. 56–57. cbi.iq

The mechanism matters because custody, transfer screening and sanctions enforcement are distinct functions. The New York Fed describes its official account services as supporting dollar payments, reserve custody, settlement and correspondent banking. Its published compliance statement separately explains that transfers into and out of foreign central-bank accounts undergo screening and diligence intended to prevent sanctioned transfers and identify suspicious activity. The analytical implication is that pressure can operate through restrictions on transactions or counterparties without confiscating the underlying assets. Nevertheless, these general records do not establish an unrestricted American power to redirect Iraqi funds, nor do they prove that a particular transfer has been withheld. A defensible assessment must identify the actual legal authority, account provision or enforcement action responsible for any restriction. Central Bank & International Account Services — Federal Reserve Bank of New York — undated; New York Fed Responds to Freedom of Information Request — Federal Reserve Bank of New York — Aug 2016. FEDERAL RESERVE BANK of NEW YORK

Banking reform changes the transmission mechanism

Iraq’s financial architecture has evolved. The IMF’s 2025 staff report states that, from January 2025, legitimate international transactions were processed through commercial banks and their correspondent relationships, while the Central Bank replenished balances weekly according to foreign-exchange demand and subsequently audited their use for compliance with anti-money-laundering and counter-terrorist-financing requirements. This is important because analysis based exclusively on the former currency-auction mechanism would misidentify where contemporary interruptions could occur. Relevant points now include commercial-bank eligibility, correspondent willingness, documentary acceptance and the availability of replenishment. Iraq: 2025 Article IV Consultation—Press Release; Staff Report; and Informational Annex — IMF — Jul 2025, paragraph 26. imf.org

The fiscal consequences require similar precision. An interruption affecting foreign payments would first constrain settlement capacity; delayed dinar salaries would depend on additional decisions and conditions within Iraqi public finance. Those outcomes should not be treated as mechanically identical. The IMF’s May 2025 mission statement identified financing pressures and renewed arrears, particularly in energy and capital expenditure, while estimating that the oil price needed to balance the budget had risen from approximately US$54 per barrel in 2020 to US$84 in 2024. These are historical estimates, not measurements of Iraq’s position in October 2026. They nevertheless establish the underlying mechanism: a state with concentrated oil receipts and substantial expenditure commitments has less room to absorb payment disruption, lower export income and domestic political demands simultaneously. Iraq: Concluding Statement of the 2025 IMF Article IV Mission — IMF — May 2025. imf.org

Najaf connects mobility to financial enforcement

Najaf brings an administrative question into the centre of strategic bargaining: whether Iraq can sustain cross-border pilgrimage access while protecting the financial relationships on which other state functions depend. Treasury’s account of the 1 October 2026 Bessent–Hussein meeting confirms that pilgrimage access, the campaign against Iran and militia demilitarisation were discussed together. It establishes their diplomatic linkage, but does not disclose an aviation licence or demonstrate that concessions in one area legally conditioned relief in another. The assessment is therefore that Washington treats these issues within an interconnected policy agenda, while the contractual and regulatory relationships between them remain to be established. READOUT: Secretary of the Treasury Scott Bessent’s Meeting with Iraq Minister of Foreign Affairs Fuad Hussein — U.S. Department of the Treasury — Oct 2026. U.S. Department of the Treasury

Carrier identity is consequential. OFAC’s opened record lists Mahan Air on the Specially Designated Nationals list under multiple programme codes and identifies secondary-sanctions exposure. A permission involving pilgrimage travel would therefore need to be examined against the actual carrier, transactions and authorization language; its existence cannot be assumed to remove every applicable prohibition. Similarly, OFAC announced in March 2025 a general extension of specified recordkeeping requirements from five to ten years. That rule does not, by itself, prove the contents of a Najaf-specific authorization concerning passenger information, fuel purchases or ground handling. Sanctions List Search: Mahan Air — OFAC — undated, consulted Oct 2026; Iran-related Designations; Publication of Final Rule to Extend Recordkeeping Requirements — OFAC — Mar 2025. sanctionssearch.ofac.treas.gov

State authority requires control over decisions and resources

The financial and security problems intersect where armed organisations can influence economic activity as well as the use of force. On 17 April 2026, Treasury designated seven Iraqi militia commanders and identified organisations including Kata’ib Hizballah, Harakat al-Nujaba, Asa’ib Ahl al-Haqq and Kata’ib Sayyid al-Shuhada. On 7 May 2026, it designated an Iraqi deputy oil minister and other actors, alleging participation in oil diversion and networks benefiting Iranian interests and armed organisations. The designations are documented American administrative actions; their explanatory allegations remain attributed Treasury findings rather than independent judicial determinations. Together, they establish that Washington’s enforcement approach addresses both armed leadership and access to economic resources. Economic Fury Targets Iran-Backed Iraqi Militia Commanders — U.S. Department of the Treasury — Apr 2026; Economic Fury Targets Iraqi Oil Official, Iran-Backed Terrorist Militias in Iraq — U.S. Department of the Treasury — May 2026. U.S. Department of the Treasury

The corresponding Iraqi challenge is institutional. Weapons collection would have limited strategic value if organisations retained independent authority over deployment, financing, personnel or retaliation. Conversely, placing personnel within public structures would strengthen sovereignty only if Iraqi authorities could enforce orders and investigate breaches. External assistance can support that process, but its practical availability must be established rather than presumed. NATO’s current mission record states that all its personnel relocated from Baghdad to Allied Joint Force Command Naples in March 2026, with the advisory mission continuing from there. This establishes continued institutional cooperation alongside a changed operating posture; it does not establish the final disposition of every separate American or coalition activity. NATO Mission Iraq — NATO — undated, consulted Oct 2026. NATO Topic

Key Evidence Table

Indicator	Value/status	Reference date	Definition/scope	Issuer	Exact source
Iraq 2 account	Documented at the New York Fed	Financial statements at 31 Dec 2020	Account described for oil receipts and other specified funds; not a disclosure of current balances	Central Bank of Iraq	Financial Statements, Note 39
Oil concentration in public revenue	Approximately 91.6%, calculated as 36.0 ÷ 39.3 × 100	2024 estimates, Jul 2025 vintage	Oil revenue divided by total revenue and grants; rounded official GDP ratios	IMF; calculation from its figures	2025 Article IV consultation release
Trade-finance architecture	Commercial banks and correspondent relationships	From Jan 2025, as documented in 2025 report	Central Bank replenishment and subsequent compliance auditing	IMF	Country Report No. 25/183, paragraph 26
Diplomatic linkage	Najaf, Iran pressure and demilitarisation discussed together	1 Oct 2026	Published Treasury meeting agenda; not licence terms	U.S. Treasury	Bessent–Hussein readout
Mahan Air	SDN-listed; secondary-sanctions exposure identified	Record consulted 6 Oct 2026	Entity-specific sanctions record	OFAC	Mahan Air entry
Sanctions recordkeeping	Specified requirements extended from five to ten years	Announcement 20 Mar 2025	General regulatory change; not evidence of airport-specific conditions	OFAC	Final-rule announcement
NATO advisory posture	Personnel relocated to Naples; mission continues	Mar 2026 development	NATO Mission Iraq, distinct from other missions	NATO	NATO Mission Iraq

The table distinguishes historical accounting evidence, estimated economic data, current sanctions records and published institutional positions. It does not treat them as observations from a single reporting period. cbi.iq

Financial Dependence and the Security Feedback

The component below separates the documented payment structure from the conditional political feedback. It assigns no numerical strength or probability to either relationship.

Alternative Pathways and Their Indicators

A negotiated institutional settlement would combine predictable lawful payments with enforceable Iraqi control over armed personnel and resources. Evidence would include published aviation permissions, consistent banking procedures, audited security expenditure and demonstrated compliance with government orders. Its principal obstacle is implementation: a diplomatic agreement can define obligations without creating the domestic capacity to enforce them.

Repeated accommodation under pressure would preserve essential financial and travel access through successive exceptions while leaving underlying disputes unresolved. Short authorization periods, recurring emergency negotiations and renewed disputes over command authority would strengthen this assessment. The cost would be continuing uncertainty for Iraqi institutions and businesses.

Escalation between financial pressure and domestic resistance would become more concerning if restrictions affecting essential transactions coincided with organised obstruction or violence. The mechanism would be mutually reinforcing: financial disruption raises political costs, while weakened enforcement increases sanctions exposure. Evidence of protected civilian-payment channels and effective Iraqi dispute resolution would weaken this pathway.

These are conditional trajectories. The verified record does not support numerical probabilities or a conclusion that any one outcome is inevitable.

Principal Gaps and Watch Indicators

Consequential record or observation	What it would establish	Decision significance
Operative Najaf aviation authorization and amendments	Eligible carriers, transactions, duration, reporting obligations and suspension provisions	Determines what Iraqi authorities and service providers must actually implement
Current Iraq 2 agreement and official account disclosures	Contemporary contractual conditions, account roles and transfer procedures	Distinguishes legal exposure from broader political leverage
Official notices restricting particular banks, transfers or currency shipments	Instrument, affected activity, scope and effective date	Separates cash disruption, transaction restrictions and sovereign-account measures
Published Iraqi command and implementation instruments	Responsible authorities, deadlines, inventories and enforcement powers	Tests whether security commitments establish practical state control
Budget-execution and arrears reports for 2026	Current fiscal capacity and the location of payment stress	Prevents historical estimates from being presented as present conditions
Incident investigations and subsequent enforcement	Whether Iraqi institutions can constrain unauthorised armed action	Provides stronger evidence of sovereignty than declarations or ceremonies

The principal judgment would strengthen if lawful financial access became more predictable while Iraqi authorities demonstrated sustained control over deployment, financing and enforcement. It would weaken if access remained dependent on repeated political intervention and armed organisations continued to exercise consequential powers beyond enforceable state direction.

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Pillar I — Oil Revenue and the Financial Boundaries of Sovereignty

Chapter 1 — From the Development Fund to Iraq 2

Iraq’s present financial dependence cannot be explained as the uninterrupted continuation of the legal arrangements established after the 2003 invasion. Those arrangements changed substantially: international deposit requirements ended, Iraqi authorities adopted successor mechanisms, and exceptional American protections against judicial attachment were subsequently withdrawn. The enduring constraint lies in the infrastructure through which Iraqi-owned assets become usable international purchasing power.

The original arrangement combined revenue custody, spending authority and creditor protection

Security Council Resolution 1483, adopted on 22 May 2003, established several distinct functions. Paragraph 12 recognised the Development Fund for Iraq and international auditing arrangements; paragraphs 13–14 addressed disbursement authority and permitted uses; paragraph 20 required petroleum-export proceeds to enter the Fund, subject to the compensation provision; paragraph 21 allocated 5% to the Compensation Fund; and paragraph 22 provided protection against specified judicial proceedings. These provisions constituted a transitional governance architecture, rather than an ordinary commercial banking relationship. Resolution 1483 (2003) — UN Security Council — May 2003, paragraphs 12–14 and 20–22; official IAEA-hosted copy. iaea.org

The distinction between these functions is essential. A requirement governing where receipts must be deposited does not itself establish ownership by the institution holding the account. Authority to direct expenditure is different from custody, while protection against creditor litigation addresses a different risk from restrictions on financial transactions.

Institutional function	Original provision	What it governed
Fund and external monitoring	Paragraph 12	Custody framework and independent auditing
Disbursement authority	Paragraph 13	Direction of expenditure during the transitional arrangement
Permitted expenditure	Paragraph 14	Humanitarian needs, reconstruction, civilian administration and other specified purposes
Petroleum receipts	Paragraph 20	Mandatory deposit of export proceeds
Compensation allocation	Paragraph 21	Separate allocation of 5% of specified proceeds
Judicial protection	Paragraph 22	Immunity from specified proceedings, subject to stated qualifications

Source: Resolution 1483 (2003) — UN Security Council — May 2003. iaea.org

The international deposit obligation ended before the banking relationship did

Resolution 1956 of 15 December 2010 terminated the specified Development Fund deposit and monitoring arrangements on 30 June 2011. Paragraph 3 expressly ended the requirement that petroleum-export proceeds be deposited into the Development Fund after that date; paragraph 5 directed the transfer of its proceeds to Iraqi successor accounts. The resolution retained the compensation obligation at that stage. Its operative text is reproduced in the archived White House record. Fact Sheet: UN Security Council High Level Meeting on Iraq — White House — Dec 2010, reproduced Resolution 1956, paragraphs 1–5. whitehouse.gov

The legal consequence is substantial: the 2003 mandatory deposit provision cannot, by itself, explain the current location of Iraqi funds. A contemporary assessment must examine the successor arrangements and their governing terms.

Iraq’s own transition report supplies the next institutional step. In its April 2011 submission, Baghdad stated that it would retain the Oil Proceeds Receipts Account and open a replacement government account held by the Central Bank at the Federal Reserve. It described an initial 95% transfer to the successor account, with the remaining compensation allocation continuing separately. It also announced the transfer of oversight responsibilities from the international monitoring board to Iraq’s Committee of Financial Experts. These were Iraqi-announced arrangements, not evidence that every later contractual term remained unchanged. Note verbale dated 29 April 2011 from the Permanent Mission of Iraq to the United Nations — UN document S/2011/290 — May 2011, enclosure paragraphs 2 and 5. 1131814e.doc

This sequence establishes a form of institutional continuity after a change in legal authority. Baghdad retained an established financial mechanism while moving towards Iraqi administration and oversight. Such continuity can preserve operational reliability, but it can also leave exposure to the jurisdiction and compliance requirements of the existing financial infrastructure.

The 2014 transition concerned protection against attachment

Executive Order 13303 of 22 May 2003 prohibited specified judicial processes against the Development Fund and other covered Iraqi property. That protection addressed attachment, execution and related proceedings; it did not transfer ownership of the Fund to the United States. Executive Order 13303: Protecting the Development Fund for Iraq and Certain Other Property in Which Iraq Has an Interest — President of the United States — May 2003. ofac.treasury.gov

Executive Order 13668 of 27 May 2014 terminated the relevant prohibitions under section 1 of the earlier order, as amended. It expressly preserved immunities available under otherwise applicable law and did not terminate the underlying national emergency. The withdrawal of that exceptional protection therefore cannot be equated either with confiscation or with the disappearance of every other legal protection applicable to Iraqi property. Executive Order 13668: Ending Immunities Granted to the Development Fund for Iraq and Certain Other Iraqi Property and Interests in Property — President of the United States — May 2014. ofac.treasury.gov

Milestone	Institutional change	Present analytical significance
22 May 2003	Development Fund architecture established	Historical origin of the revenue framework
15 December 2010	Resolution 1956 adopted	Decision to terminate specified UN arrangements
30 June 2011	Deposit and monitoring arrangements terminated	Original mandatory Fund-deposit requirement ceased
April 2011 transition submission	Iraq announced Federal Reserve successor accounts	Documents Iraqi adoption of continuity arrangements
27 May 2014	Exceptional executive-order protections ended	Requires separation of attachment protection from payment access

Sources: Resolution 1483 — UN Security Council — May 2003; Resolution 1956, reproduced official text — White House — Dec 2010; S/2011/290 — Permanent Mission of Iraq — May 2011; Executive Order 13668 — May 2014. iaea.org

The 2024 accounts provide a stronger documentary baseline for Iraq 2

The Central Bank’s financial statements at 31 December 2024, Note 33, retain the description of accounts administered on behalf of the Ministry of Finance. They recount the May 2014 transfer and identify Iraq 2 at the Federal Reserve Bank of New York, receiving oil-shipment amounts, recovered funds and frozen balances, with a corresponding Ministry of Finance current account. The same note separately describes accounts associated with the Iraq–China economic agreement. It does not publish the complete contemporary account contract or establish that every dollar of Iraqi public assets follows one identical route. القوائم المالية كما في 31 كانون الأول 2024 — Central Bank of Iraq — 2024 reporting period, Note 33, printed p. 59. cbi.iq

The presence of separate arrangements makes account-level analysis indispensable. Financial statements can identify an account’s purpose and accounting treatment without disclosing its signatories, transfer conditions, termination provisions or operational restrictions.

Question	Evidence needed	Why the answer matters
Who owns the relevant funds?	Account title, applicable law and beneficial-interest documentation	Establishes property rights
Who can instruct transfers?	Mandate and authorised-signatory provisions	Establishes operational authority
Which transfers can be restricted?	Applicable sanctions rules and account procedures	Establishes transaction exposure
Can assets be attached by creditors?	Applicable immunity law and relevant proceedings	Establishes litigation exposure
Can the account relationship be changed?	Contractual provisions and competent Iraqi authorisation	Establishes feasible exit or diversification options

This is an analytical checklist, rather than a claim that the unpublished agreement contains any particular provision.

Key judgments

The original UN deposit obligation, Iraqi successor-account decisions and American financial enforcement are separate sources of authority. Treating them as one continuous instrument obscures where Baghdad possesses discretion and where it encounters external constraints.

Changing the location of an account would widen freedom of action only if Iraq also preserved dependable settlement, liquidity, legal protection and access to counterparties.

What would change the assessment

Publication of the current Iraq 2 agreement, official amendments or a competent legal determination concerning its operation would materially sharpen the assessment of Iraqi discretion.

Open official record

The consequential missing documents are the current account mandate, transfer conditions, custody agreement and authoritative provisions governing modification or termination.

Chapter 2 — How Dollar Access Transmits Political Pressure

Financial pressure becomes effective when it interrupts a necessary transaction or induces institutions to withdraw services that Baghdad cannot readily replace. The mechanism must be identified precisely: blocked property, rejected payments, correspondent-account restrictions, enhanced screening and physical-currency disruption have different legal bases and economic consequences.

Financial messaging does not settle the ownership question

SWIFT describes itself as a financial-messaging provider and states that it does not hold funds or manage customer accounts. Consequently, the transmission of a payment instruction and the movement of the underlying balance must be analysed separately. A payment may have a technically available messaging route while a bank refuses to execute it, or while the required account relationship is unavailable. Swift to Set New Rules for Retail Cross-Border Payments on Its Network — Swift — Sep 2025, “About Swift”. Swift

The relevant diagnostic question is therefore where the transaction stops. Substituting a messaging channel would not necessarily replace access to an account, an executing bank or lawful settlement.

Transaction restrictions differ from immobilisation of assets

OFAC distinguishes rejection from blocking. Its FAQ 36 explains that a transaction can be prohibited without containing a blockable interest; in such circumstances, rejection rather than blocking can be required. This distinction prevents a refusal to process a particular payment from being misreported as the freezing of all assets belonging to its originator. The precise treatment depends on the applicable programme and transaction. FAQ 36: When Should a Transaction Be Rejected Rather Than Blocked? — OFAC — updated Jun 2020. Office of Foreign Assets Control

Mechanism	Immediate effect	What it does not establish
Blocking	Immobilises property subject to the applicable blocking authority	Confiscation or transfer of ownership
Rejection	Prevents execution of a prohibited transaction	Immobilisation of every asset of the sender
Correspondent-account prohibition	Removes specified account access	A general prohibition on all Iraqi banking
Enhanced screening	Requires examination before processing	A final finding that the transaction is unlawful
Commercial withdrawal of services	Removes a bank’s willingness to provide a service	A government order affecting every institution

The first two distinctions follow OFAC FAQ 36. The institution-specific correspondent mechanism is documented in FinCEN’s Al-Huda Bank final-rule announcement — Jun 2024. The final two rows describe operational categories that require transaction-level evidence before attribution. Office of Foreign Assets Control

Al-Huda demonstrates how restrictions reach beyond a named bank

FinCEN’s Al-Huda action supplies a concrete example. The final measure prohibited covered American institutions from opening or maintaining correspondent accounts for or on behalf of Al-Huda. It also required safeguards against indirect access through foreign correspondent accounts. Its relevance extends beyond direct account closure: institutions maintaining international relationships had to guard against processing transactions involving the named bank. FinCEN attributed the action to its money-laundering and terrorist-financing findings; those findings should retain that attribution. FinCEN Finalizes Financial Measure Against Iraq-based Al-Huda Bank to Combat Terrorist Financing — FinCEN — Jun 2024. FinCEN.gov

The regulatory chronology distinguishes announcement from legal effect.

Stage	Date	Documentary status
Finding and proposed measure announced	29 January 2024	Proposed intervention
Final measure announced	26 June 2024	Finalisation announced
Final rule published	3 July 2024	Operative regulatory text published
Final rule effective	2 August 2024	Commencement specified in the rule

Sources: FinCEN Finds Iraq-based Al-Huda Bank to Be of Primary Money Laundering Concern — Jan 2024; FinCEN Finalizes Financial Measure — Jun 2024; Imposition of Special Measure Regarding Al-Huda Bank — Federal Register — Jul 2024. FinCEN.gov

The strategic inference is that targeted restrictions can create wider screening burdens without requiring a countrywide financial embargo. The practical breadth of their effect depends on whether institutions can identify and exclude the affected transactions while continuing legitimate business.

Electronic dollars and physical banknotes are different services

The New York Fed’s official account-services description distinguishes dollar transfers through Fedwire from arrangements for shipping banknotes. It also describes custody, securities settlement and foreign-exchange services. These functions should not be aggregated into a single measure of “dollar access.” Central Bank & International Account Services — Federal Reserve Bank of New York — undated, consulted Oct 2026. FEDERAL RESERVE BANK of NEW YORK

A problem affecting banknote delivery would initially concern physical-currency availability. A problem affecting an electronic transfer would concern the execution of a payment. Either could become politically consequential, but their initial incidence and remedies would differ.

Service affected	Initial exposure	Relevant evidence
Physical banknote supply	Cash availability for authorised uses	Shipment instructions, delivery records and official notices
Electronic transfer	Particular external payments	Payment status, rejection reason and account records
Securities liquidation or settlement	Conversion of investments into usable balances	Custody instructions and settlement records
Commercial correspondent service	Importer or bank access to a payment channel	Correspondent notices and account terms

The service distinctions are grounded in the New York Fed’s account-services description; the exposure and evidence columns are analytical applications. FEDERAL RESERVE BANK of NEW YORK

Screening creates influence without establishing unrestricted discretion

The New York Fed’s compliance statement confirms screening and diligence on transfers both into and out of foreign central-bank accounts. It identifies prevention of sanctioned transfers and detection of suspicious activity as purposes. This establishes a compliance interface through which a transaction can encounter scrutiny; it does not establish that every delay constitutes political coercion. New York Fed Responds to Freedom of Information Request — Federal Reserve Bank of New York — Aug 2016. FEDERAL RESERVE BANK of NEW YORK

Attribution requires distinguishing enforcement against a prohibited transaction from administrative delay, incomplete documentation and an institution’s commercial risk decision. Repeated delays alone do not identify the cause. A defensible investigation needs the affected transaction, the responsible institution, the stated reason and the applicable authority.

The trade-finance reform relocates operational responsibility

The IMF documents that, from January 2025, legitimate international transactions were processed through commercial-bank correspondent relationships, with weekly Central Bank replenishment and subsequent compliance auditing. The reform moved operational responsibility into a network of bank relationships. Its resilience therefore depends partly on the ability of individual banks to maintain acceptable documentation and dependable correspondents. Iraq: 2025 Article IV Consultation — IMF Country Report No. 25/183 — Jul 2025, paragraph 26. www.imf.org

The analytical implication is a distributed vulnerability. An importer’s access can deteriorate even while national reserves remain substantial, because the binding constraint can lie in the bank relationship or transaction documentation rather than the aggregate stock of foreign assets.

The fiscal consequences depend on the transmission chain

External-payment disruption does not automatically prevent the government from making dinar payments. A broader fiscal crisis would require additional mechanisms: impaired revenue receipt, expenditure pressures, domestic financing constraints, exchange-rate stress or loss of confidence.

Conditional disturbance	First-round consequence	Route to wider fiscal stress
Essential import payment delayed	Supplier remains unpaid	Delivery interruption or higher procurement costs
Correspondent relationship lost	Bank loses settlement capacity	Congestion in remaining channels and reduced access
Oil receipt delayed	Incoming funds arrive later	Mismatch between expenditure dates and available revenue
Currency confidence weakens	Demand shifts towards foreign currency	Additional pressure on reserves and domestic prices
Government responds with monetary financing	More domestic liquidity	Greater foreign-exchange demand unless matched by stronger confidence or supply

These are analytical transmission pathways, not assertions that each has occurred. The IMF’s mission explicitly cautioned against monetary financing because of inflation, reserve and central-bank-balance-sheet risks. Iraq: Concluding Statement of the 2025 IMF Article IV Mission — IMF — May 2025. imf.org

Key judgments

The scope of financial pressure depends on the service, institution and transaction affected. A targeted banking action can impose wider operational costs, but its existence does not establish a freeze of Iraq’s sovereign funds.

Reliable access requires more than an available communication network or adequate aggregate reserves. It requires institutions willing and authorised to execute the necessary payments.

What would change the assessment

Official notices identifying affected services, together with transaction records and evidence of functioning replacement channels, would establish the actual breadth and durability of restrictions.

Open official record

The principal collection requirement is a transaction-level chronology separating government restrictions, compliance decisions, documentation failures and commercial withdrawal.

Chapter 3 — The Oil-Funded State and Its Capacity to Absorb Pressure

Iraq’s capacity to resist external financial pressure depends on the relationship between recurring expenditure, incoming revenue and usable liquidity. Foreign reserves provide an important buffer, but they do not eliminate the consequences of concentrated revenue, expenditure rigidity or interruptions to export capacity.

The revenue base remains concentrated, but the data vintages must remain separate

The World Bank’s April 2026 assessment estimated that, in 2025, oil represented 53% of real GDP, 88% of government revenue and 91% of merchandise exports. These are different measures of dependence, with different denominators. They demonstrate that a disruption can affect production, public finance and external earnings simultaneously. They should not be combined into a single dependency score. Macro Poverty Outlook: Middle East, North Africa, Afghanistan and Pakistan — World Bank — Apr 2026, Iraq section, printed pp. 14–15. documents1.worldbank.org

The IMF’s earlier estimates provide a separate expenditure baseline.

Central-government indicator	2024 estimate, % of GDP
Revenue and grants	39.3
Oil revenue	36.0
Non-oil revenue, calculated difference	3.3
Expenditure and net lending	43.5
Wages and pensions	22.0
Fiscal balance	−4.2

Source: IMF Executive Board Concludes 2025 Article IV Consultation with Iraq — IMF — Jul 2025. These are historical estimates, not October 2026 observations. imf.org

Derived relationship	Calculation	Result
Wages and pensions / expenditure	22.0 ÷ 43.5	50.6%
Non-oil revenue / expenditure	3.3 ÷ 43.5	7.6%
Wages and pensions / non-oil revenue	22.0 ÷ 3.3	6.7 times

Calculated from the IMF’s July 2025 figures, using rounded inputs. These ratios describe fiscal structure; they do not identify available cash. imf.org

The implication is expenditure rigidity. When politically sensitive recurring commitments absorb substantial resources, adjustment is liable to fall on payments that can be postponed more readily. That can protect immediate household income while weakening investment, maintenance or supplier confidence.

Cash deficits can conceal adjustment through unpaid obligations

The World Bank reported a 2025 cash-basis fiscal deficit of 2.1% of GDP, alongside payment delays and arrears accumulation. It also reported an 11.8% year-on-year decline in oil revenue. Its GDP-based fiscal ratios use the denominator specified in the table notes and should not be spliced into the IMF series without reconciliation. Macro Poverty Outlook — World Bank — Apr 2026, Iraq section. documents1.worldbank.org

A cash deficit measures payments made against cash receipts. If obligations remain unpaid, the published cash balance can improve relative to a measure recognising those obligations. Arrears therefore require separate attention: postponing a payment preserves government cash temporarily while transferring financing pressure to the supplier.

Fiscal measure	Question answered	Limitation
Cash balance	How much was received and paid?	Does not fully describe unpaid obligations
Arrears stock	Which due obligations remain unpaid?	Requires consistent coverage and ageing
Commitment register	What future payments have been authorised?	Authorisation does not establish payment
Budget execution	Which appropriations were implemented?	Low execution can reflect financing or delivery problems
Available treasury cash	What can be paid immediately?	Does not establish long-term sustainability

These distinctions are the analytical basis for assessing whether fiscal adjustment reflects reform or merely postponed settlement.

Reserves are a buffer whose usability must be established

The World Bank reported international reserves of US$98.7 billion as of February 2026, covering approximately 11 months of imports. That observation establishes a substantial external buffer at that date, not the October balance or an unrestricted treasury spending account. Macro Poverty Outlook — World Bank — Apr 2026, Iraq section. documents1.worldbank.org

The policy question concerns both the stock and the channels through which it can be used. A reserve asset can contribute to external resilience without being legally or operationally interchangeable with Ministry of Finance cash. Equally, adequate reserves do not guarantee that a particular bank or importer can execute an otherwise problematic transaction.

Resource	Main analytical role	Required qualification
Treasury cash	Immediate expenditure capacity	Confirm ownership, availability and commitments
Central-bank reserves	External liquidity and monetary resilience	Confirm composition and operational usability
Commercial-bank foreign balances	Customer settlement capacity	Confirm correspondent access and restrictions
Domestic bank liquidity	Local lending and settlement	Does not itself supply foreign currency
Oil receivables	Expected future income	Receipt timing and collectability remain material

Domestic liquidity cannot substitute for external purchasing power

The IMF’s May 2025 mission recommended stronger liquidity forecasting and short-term central-bank instruments while warning against financing government deficits through the Central Bank. The combination matters: excess domestic liquidity and public financing stress can coexist because they concern different institutions, maturities and uses. Iraq: Concluding Statement of the 2025 IMF Article IV Mission — IMF — May 2025. imf.org

Creating additional dinar liquidity would not, by itself, create imported goods or foreign settlement capacity. Its effect would depend on confidence, productive supply and foreign-exchange demand. This is why the assessment must distinguish a shortage of treasury financing from a shortage of external access.

Physical export capacity can dominate the benefit of higher prices

The World Bank’s April 2026 publication reported that production had fallen to approximately 1.3 million barrels per day during the regional disruption and estimated forgone oil revenue of up to US$7 billion in March 2026. These are period-specific observations and estimates; they are not presented here as October operating conditions. Macro Poverty Outlook — World Bank — Apr 2026, Iraq section. documents1.worldbank.org

The broader mechanism is multiplicative: export income depends on both realised prices and volumes actually sold and collected. Higher prices cannot compensate automatically for a severe loss of export capacity. Financial-channel resilience and physical export resilience therefore address separate vulnerabilities.

A bounded sensitivity calculation illustrates the price component without presenting a forecast.

Hypothetical change in realised export price	Annual gross-receipt change at 3.4 million barrels/day
US$5 per barrel	Approximately US$6.2 billion
US$10 per barrel	Approximately US$12.4 billion
US$20 per barrel	Approximately US$24.8 billion

Calculated as 3.4 million × 365 × price change, holding volume constant. The volume is the IMF’s 2024 estimate; costs, contractual allocations, collection delays and behavioural responses are excluded. Gross export receipts are not identical to net budget revenue. Iraq: 2025 Article IV Consultation — IMF — Jul 2025, selected indicators. imf.org

Diversification requires institutional change as well as alternative channels

The IMF’s separate Selected Issues report identifies a banking system dominated by two state-owned banks, constrained private-sector credit and weaknesses in regulation and governance. Its reform discussion addresses bank restructuring, supervision, ownership policy and modern core banking systems. These are foundations for a broader productive and tax base; announcing a new settlement currency would not replace them. Iraq: Selected Issues — IMF Country Report No. 25/184 — Jul 2025, paragraphs 17 and 20. meetings.imf.org

For sovereignty, the relevant test is whether reform creates dependable alternatives rather than another concentrated dependency.

Reform avenue	Intended effect	Evidence of substantive progress
Broader correspondent network	Reduce reliance on particular banks	Active relationships and successfully settled transactions
Stronger non-oil revenue administration	Expand recurring domestic receipts	Collected revenue with consistent definitions
Better commitment and cash management	Reduce payment surprises	Reliable forecasts, commitment controls and lower arrears
Bank governance reform	Improve intermediation and confidence	Enforced governance standards and functioning systems
Export-route resilience	Protect revenue-generating capacity	Operational throughput and completed shipments
More efficient public investment	Strengthen productive capacity	Completed, functioning assets and measured service delivery

These are analytical implementation tests. They do not imply that the reforms have been completed.

Key judgments

Iraq’s ability to absorb pressure is determined by the weakest link between revenue generation, receipt, financial access and expenditure management. A large reserve stock can coexist with payment stress, just as domestic liquidity can coexist with limited external settlement capacity.

The strongest route to greater autonomy is the simultaneous strengthening of lawful payment access, fiscal flexibility and productive capacity. Moving balances or changing currencies would address only part of that system.

What would change the assessment

The assessment would improve with published 2026 execution accounts showing stronger recurring non-oil receipts, declining arrears, dependable external settlement and sustained export capacity. It would deteriorate if recurring commitments continued to grow while investment and suppliers absorbed successive financing shocks.

Open official record

The priority records are current treasury cash and commitment reports, an aged arrears register, reserve composition and availability disclosures, monthly export receipts and bank-level correspondent-access information. Their combined availability would make it possible to measure practical financial resilience rather than infer it from headline reserves or announced policy.

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Operation Dawn: Inside Iraq’s Corruption Purge and Washington’s Hand

Pillar II — Aviation, Armed Power and Iraqi Decision Authority

Chapter 4 — Najaf and the Administration of Sanctions

The decisive question at Najaf is whether Iraqi institutions can maintain reliable pilgrimage access under an authorisation they can interpret, implement and enforce. A diplomatic agreement becomes operational only when airlines, airport service providers and payment intermediaries know which activities it covers. Baghdad’s responsibility therefore extends beyond negotiating the resumption of flights: it must establish a coherent administrative framework for the services that make those flights possible.

The aviation restrictions extend beyond one carrier

On 8 September 2026, the US Treasury announced sanctions against 36 targets, including 27 Iranian airlines designated under Executive Order 13902. The action followed an aviation-sector determination issued on 24 August. Treasury also announced the suspension of three aviation authorisations, including permissions concerning overflights and certain operations into Iran involving US-origin or US-controlled aircraft. These measures broadened the regulatory problem facing Iraq beyond Mahan Air’s longstanding designation. Treasury Grounds Iranian Airlines with Sweeping Sanctions Action — US Treasury — Sep 2026 U.S. Department of the Treasury

Official measure	Verified detail	Significance for Iraqi administration
Aviation-sector determination	Issued on 24 August 2026 under EO 13902	Establishes a sectoral basis for subsequent designations
September sanctions action	36 targets, including 27 Iranian airlines	Requires carrier-specific assessment across a wider group
Aviation authorisations	Three authorisations suspended	Previous permissions require renewed examination
Mahan Air designation history	Counterterrorism designation in October 2011; proliferation-related designation in December 2019	Its legal position requires separate assessment

Source: Treasury Grounds Iranian Airlines with Sweeping Sanctions Action — US Treasury — Sep 2026.

The distinction matters operationally. Excluding one airline from an arrangement does not explain the treatment of every other designated carrier, its aircraft, its commercial agents or its service providers. The practical meaning of an exemption depends on the transactions it authorises and the persons entitled to rely on it.

Pilgrimage access requires several distinct permissions

Treasury’s account of the 1 October meeting between Scott Bessent and Iraqi Foreign Minister Fuad Hussein expressly identifies Shia pilgrimages to Najaf as a subject of discussion. It also places the discussion alongside Washington’s pressure campaign against Iran and its expectations concerning militia demilitarisation. This establishes that pilgrimage access formed part of a broader political negotiation. The readout supplies no operative licence conditions. Secretary Bessent’s Meeting with Iraqi Foreign Minister Fuad Hussein — US Treasury — Oct 2026 U.S. Department of the Treasury

OFAC distinguishes between a general licence, which publicly authorises a category of transactions, and a specific licence, which is a non-public authorisation issued to a particular applicant. Users must comply with the applicable conditions, including reporting and recordkeeping requirements. Consequently, the absence of a published Najaf-specific general licence would not establish that no authorisation exists; a specific licence could govern the arrangement. FAQ 74: What Is an OFAC License? — OFAC — updated Sep 2026 Office of Foreign Assets Control

The institutional distinction is equally important. Iraqi authorities decide domestic aviation access within their legal competence. OFAC determines the treatment of transactions under the US sanctions programmes it administers. An Iraqi landing permission and a US sanctions authorisation address separate legal questions.

The following table identifies the documentation needed to make a negotiated arrangement usable. It is an implementation framework, rather than a description of confirmed Najaf licence conditions.

Operational layer	Question requiring an authoritative answer	Necessary implementation record
Airline eligibility	Which legal entities may operate?	Approved carrier list with exact entity names
Aircraft eligibility	Does coverage extend to leased aircraft and substitute operators?	Registration, operator and ownership documentation
Route and duration	Which destinations, directions and dates are covered?	Route schedule and authorisation period
Airport services	Are fuel, handling, catering and other services covered?	Written service scope and contractual instructions
Payments	Which payers, recipients and intermediaries may participate?	Approved settlement arrangements and invoices
Passengers and cargo	What screening duties apply, and who resolves disputed matches?	Screening procedure, escalation authority and decision log
Suspension and renewal	Who may suspend operations, and under what conditions?	Named decision authority and renewal procedure

A political announcement can resolve the immediate dispute while leaving these questions unanswered. That creates a predictable administrative failure: one institution treats flights as approved while another refuses a necessary service. Airlines then face cancellations arising from inconsistent implementation, even when the diplomatic understanding remains intact.

Iraqi institutions bear the implementation burden

The strongest arrangement would give airport operators and service providers a common interpretation of the authorisation. It would identify a lead Iraqi authority, establish a procedure for resolving ambiguous transactions and distinguish routine approvals from cases requiring external clarification.

These are substantive decision powers. Whoever resolves an uncertain passenger match, approves an airline’s substitute aircraft or interprets a fuel-payment condition can determine whether a flight proceeds. When those decisions lack a clear hierarchy, operational staff inherit political responsibility without the authority needed to discharge it.

Ownership screening adds another dimension. OFAC’s 50 Percent Rule can treat an entity as blocked when blocked persons own at least half of it, directly or indirectly and in aggregate. Checking a supplier’s name against a list therefore may be insufficient for a transaction subject to US blocking rules. Ownership information can matter even when the supplier is not separately named. FAQ 401: Indirect Ownership and the 50 Percent Rule — OFAC — Aug 2014 Office of Foreign Assets Control

For Najaf, the administrative challenge is to apply the necessary controls without creating an unlimited discretionary barrier to travel. A passenger-screening system should have a procedure for correcting mistaken identity. A service-provider review should distinguish confirmed ownership information from suspicion. Decisions to interrupt operations should be recorded and attributable to an authorised official.

This also affects Baghdad’s negotiating position. An institution that can document compliance precisely is better placed to request clarification, renewal or expanded coverage. An institution dependent on informal assurances must renegotiate whenever an intermediary becomes uncertain.

Measuring access without overstating capacity

Flight permissions, completed aircraft movements and passengers carried measure different things. A daily authorisation ceiling cannot establish the number of pilgrims who travelled, the reliability of services or the airport’s commercial recovery.

Indicator	What it measures	Required qualification
Authorised daily movements	Maximum permitted operating activity	Clarify whether arrivals and departures count separately
Completed movements	Flights actually operated	Separate cancellations and diversions
Available passenger seats	Scheduled carrying capacity	Identify aircraft type and configuration
Passengers carried	Actual use of the service	Separate arrivals, departures and connecting traffic
Cancellation rate	Reliability of access	Distinguish regulatory, commercial and technical causes
Authorisation duration	Predictability for planning	Record expiry and renewal conditions

No defensible passenger estimate follows from a flight ceiling alone. Airlines need predictable operating permission; pilgrims need services that actually operate. Those requirements should guide the Iraqi assessment of any arrangement.

Key judgments

• Najaf’s decision authority depends on the scope and practical usability of aviation authorisations.
• Iraqi institutions need a common interpretation covering carriers, services, payments and operational exceptions.
• Reliable pilgrimage access requires measurable completed operations and a clear process for resolving disputed cases.

What would change the assessment

An authoritative licence or Iraqi implementation circular identifying covered carriers, permitted services, duration and reporting duties would materially improve the assessment. Airport operating records would establish whether negotiated access produces dependable travel.

Open official record

The central unresolved document is the operative authorisation and its implementing instructions. Treasury’s public meeting readout confirms the diplomatic agenda; it does not establish passenger-data requirements, service-payment conditions or the duration of a Najaf arrangement. Secretary Bessent’s Meeting with Iraqi Foreign Minister Fuad Hussein — US Treasury — Oct 2026.

Chapter 5 — Armed Organisations and the Meaning of State Control

Effective state control requires the government to decide how armed units are commanded, deployed, supplied and disciplined. A weapons handover can contribute to that objective, but its significance depends on what happens to the organisation capable of acquiring weapons, maintaining personnel and issuing operational orders.

Iraqi law already establishes a command framework

Article 9 of Iraq’s Constitution places the armed forces under civilian authority and prohibits military militias outside the armed forces’ framework. Article 78 identifies the prime minister as commander-in-chief. These provisions establish the constitutional basis for assessing armed authority. Constitution of the Republic of Iraq, Articles 9 and 78 — Supreme Judicial Council — 2005 sjc.iq

The Justice Ministry’s account of Law No. 40 of 2016, published in Gazette No. 4429, describes the Popular Mobilisation Commission as part of the Iraqi armed forces, linked to the commander-in-chief. It identifies military-law obligations, military hierarchy, separation from political and party affiliations, and the commander-in-chief’s exclusive authority over redeployment and distribution across provinces. Publication of Popular Mobilisation Commission Law No. 40 of 2016 — Iraqi Ministry of Justice — Jan 2017 جمهورية العراق

The analytical task is therefore to establish how the legal framework operates in practice. Formal inclusion creates duties; effective subordination requires evidence that those duties govern decisions when organisational preferences conflict with government instructions.

Statutory requirement identified by the Justice Ministry	Evidence needed to assess implementation
Connection to the commander-in-chief	Documented orders and verified execution
Application of military law	Disciplinary proceedings and enforceable judgments
Military hierarchy	Authorised appointments and command succession
Separation from political affiliations	Personnel compliance and documented enforcement
Central authority over redeployment	Movement orders implemented across units

Source for statutory requirements: Publication of Popular Mobilisation Commission Law No. 40 of 2016 — Iraqi Ministry of Justice — Jan 2017. The evidence column is an analytical assessment framework.

Weapons custody and operational authority

Weapons transfers should be assessed against an inventory baseline. Without that baseline, the state cannot determine what proportion of an organisation’s capacity has changed custody. The composition of the transfer also matters: obsolete small arms, ammunition, drones, launch systems and production equipment have different operational significance.

Custody itself requires examination. State-labelled storage offers limited assurance if the same autonomous commanders retain unrestricted access, control maintenance personnel or determine when equipment leaves the facility. A meaningful transfer changes the authority to access, service and employ the asset.

The following indicators test institutional subordination. They are proposed measures, not claims that Iraq has published these results.

Dimension	Evidence of effective state control	Material weakness
Personnel	Verified roster, authorised recruitment and direct salary administration	An organisation maintains its own personnel system
Command	Government can appoint, remove and replace commanders	Removal requires the organisation’s consent
Operations	Missions require authorisation and produce accessible records	Parallel channels can initiate operations
Weapons	Audited inventories and controlled access	Equipment remains available outside authorised custody
Procurement	Acquisitions pass through accountable state procedures	Independent supply networks remain operational
Discipline	Investigators obtain access and penalties are enforced	Commanders can obstruct proceedings
Territory	State authorities can inspect facilities and implement deployment orders	Organisational permission is required for access

A useful assessment would track several of these indicators over time. Counting transferred weapons while leaving recruitment, procurement and command untouched risks measuring a temporary reduction in available equipment rather than a durable transfer of authority.

Political accommodation must produce enforceable obligations

An Iraqi-led settlement needs a political agreement capable of surviving leadership changes and regional crises. Negotiation can establish sequencing, protect lawful personnel entitlements and reduce the risk of violent resistance. Its institutional value depends on whether those concessions secure obligations that can subsequently be enforced.

For example, a phased integration process could preserve salaries and service recognition while requiring verified rosters, recognised command appointments and controlled procurement. Retirement provisions could reduce the cost of leaving an autonomous command structure. These are possible settlement instruments; their effectiveness would depend on their legal basis, funding and implementation.

The critical question is whether the government can enforce the settlement against an organisation that later disputes an order. If each deployment, investigation or appointment requires a fresh political bargain, the state has acquired coordination without dependable command.

Accommodation also needs a defined endpoint. A temporary exception can help manage a transition. An exception without expiry, review or consequences can become a permanent entitlement to autonomous action.

Sanctions exposure remains organisation-specific

On 17 April 2026, Treasury designated seven Iraqi militia commanders associated with Kata’ib Hezbollah, Kata’ib Sayyid al-Shuhada, Harakat al-Nujaba and Asa’ib Ahl al-Haqq. Its release identifies all four organisations as designated under US counterterrorism authorities and as Foreign Terrorist Organizations. Treasury attributes operational responsibilities and Iranian support to the targeted networks; those descriptions are the US government’s stated assessment. Economic Fury Targets Iran-Backed Iraqi Militia Commanders — US Treasury — Apr 2026 U.S. Department of the Treasury

These designations concern named organisations and individuals. They cannot establish the sanctions status of every PMU unit, employee or associated institution. Iraqi decision-making requires an entity-level account of exposure.

The distinction creates a practical integration problem. An Iraqi legal appointment does not itself explain the treatment of a designated individual under a foreign sanctions regime. A settlement therefore needs personnel vetting, accountable procurement and clearly identified counterparties alongside its command provisions.

Ownership rules add a further reason for precision: commercial entities owned by blocked persons can acquire blocked status under OFAC’s applicable ownership test. Political association alone is a different question from the ownership threshold. FAQ 401: Indirect Ownership and the 50 Percent Rule — OFAC — Aug 2014.

Assessing progress through observable decisions

The most revealing evidence would concern decisions an organisation finds costly: accepting a replacement commander, obeying a redeployment order, granting investigators access or surrendering an independent procurement channel.

Routine cooperation has value, but it offers limited information about the government’s authority during disagreement. A stronger assessment would examine whether compliance persists through political disputes and security emergencies.

No public surrender total should be treated as a complete measure unless it identifies the original inventory, transferred categories, remaining stocks and subsequent access arrangements. Similarly, the absence of visible attacks during a short period cannot establish that autonomous operational structures have disappeared.

Key judgments

• The central objective is enforceable command, supported by personnel, procurement and disciplinary control.
• Weapons transfers become strategically meaningful when they restrict independent access and the ability to rebuild capability.
• Political accommodation can support subordination when it establishes obligations that survive disagreement.
• Sanctions assessments require precise identification of organisations, individuals and ownership relationships.

What would change the assessment

Verified compliance with contested government orders would provide stronger evidence than declarations of cooperation. Audited inventories, implemented command changes and completed disciplinary cases would permit a more confident judgment.

Open official record

The missing evidence is an accessible implementation record linking government orders to unit compliance. The published statutory framework establishes obligations; it supplies no comprehensive audit of their execution. Publication of Popular Mobilisation Commission Law No. 40 of 2016 — Iraqi Ministry of Justice — Jan 2017.

Chapter 6 — Security Transition and Relations with Iran

An Iraqi-led security settlement requires Baghdad to assume operational responsibilities while keeping external cooperation subject to Iraqi authority. Its durability depends on the institutions that sustain intelligence, protection, logistics and national coordination after the coalition transition.

The coalition mission has concluded

On 30 September 2026, the UK Ministry of Defence announced the conclusion of the Global Coalition’s military mission in Iraq and the departure of coalition forces, including UK personnel. It also affirmed an intention to develop an enduring bilateral defence partnership with Iraq. The statement establishes a mission transition accompanied by continuing cooperation. Conclusion of the Global Coalition’s Military Mission in Iraq — UK Ministry of Defence — Sep 2026 GOV.UK

The same statement reports that UK support over the preceding decade included training and assistance to more than 111,000 Iraqi security personnel, including more than 21,000 Peshmerga, and RAF strikes against more than 2,300 Daesh targets. These are cumulative activity figures. They establish the scale of previous assistance, without measuring current readiness or the replacement of every enabling capability. Conclusion of the Global Coalition’s Military Mission in Iraq — UK Ministry of Defence — Sep 2026.

A capability assessment must therefore move from past activity to present availability. Training attendance cannot establish whether a unit has functioning communications, usable intelligence, maintained equipment and a dependable resupply system.

Continuing advisory support has a different operational footprint

NATO describes its Iraq mission as non-combat advisory and capacity-building assistance. Its current account states that all personnel were relocated from Baghdad to Allied Joint Force Command Naples in March 2026, where the mission continues. Advisory continuity therefore exists alongside a changed physical presence. NATO Mission Iraq — NATO — current account consulted Oct 2026 NATO Topic

NATO also states that its mission trains Iraqi security-force members under the Iraqi government’s direct control. This makes institutional command relevant to access to an established assistance channel. Relations with Iraq — NATO — current account consulted Oct 2026 NATO Topic

The following table identifies the capabilities an Iraqi transition assessment should examine. It does not imply that every listed function is currently absent.

Capability	Iraqi institutional requirement	Useful evidence
Intelligence coordination	An authorised process connecting collection, analysis and operational decisions	Dissemination records and tested response procedures
Airspace protection	Detection, warning, engagement authority and functioning equipment	Coverage assessments and readiness tests
Counterterrorism operations	Coordinated deployment and lawful intelligence use	Exercise results and mission reviews
Logistics	Maintenance, spare parts and predictable resupply	Serviceability and repair-time records
Medical support	Available evacuation and treatment arrangements	Tested evacuation procedures
Border security	Accountable patrols and incident coordination	Patrol coverage and investigation records
External assistance	Defined mandates and Iraqi oversight	Agreements, implementation protocols and review dates

A settlement can retain foreign technical support while strengthening Iraqi authority if Baghdad controls its mandate, beneficiaries and operational use. The decisive issue is whether assistance sustains institutions accountable to Iraq’s lawful decision-makers.

Kurdish exposure makes protection a national obligation

The Kurdistan Regional Government’s Ministry of Peshmerga Affairs stated on 28 September that the region had experienced more than 1,000 drone and ballistic-missile impacts during the ongoing regional conflict. It warned that withdrawal would occur without an alternative air-defence system and identified protection of regional airspace as a federal responsibility. These are the ministry’s reported figures and assessment; the statement provides no incident-level dataset allocating responsibility for each attack. KRG Ministry of Peshmerga Affairs Statement — KRG — Sep 2026 gov.krd

The policy implication is concrete. Baghdad must establish warning coverage, communication with regional authorities and a procedure for responding to aerial threats. Protection needs to operate across political jurisdictions.

Iraq’s Constitution gives federal authorities exclusive responsibility for national-security policy and recognises regional authority over internal security forces. An Iraqi-led settlement must make those responsibilities interoperable. Constitution of the Republic of Iraq, Articles 110 and 121 — Supreme Judicial Council — 2005 sjc.iq

On 10 September, the Peshmerga Affairs Ministry announced the completion of unification and reorganisation under its command, including the 70 and 80 Forces. This is an official institutional claim. Verification would require evidence that appointments, payroll, procurement and operational orders function through the announced structure. MoPA Announces Completion of Peshmerga Unification and Reorganisation — KRG — Sep 2026 gov.krd

Relations with Iran require defined institutional channels

Iraq’s National Security Advisory’s clarification of 13 August 2025 described its arrangement with Iran as a security memorandum concerning border security, cooperation and Iranian Kurdish opposition groups. It linked the memorandum to a March 2023 security record and said the instrument had received cabinet approval before signature. This provides evidence of a formal bilateral channel with a stated subject matter. Clarification Concerning the Iraq–Iran Security Memorandum — Iraqi National Security Advisory, published by INA — Aug 2025 ina.iq

The institutional requirements follow from that scope. Border cooperation needs designated implementing authorities, defined procedures and an accountable mechanism for handling incidents. Measures affecting people on Iraqi territory require a clear legal basis and access to applicable review procedures.

Formal state cooperation should also be assessed separately from relationships involving individual armed organisations. Evidence concerning one commander or network cannot establish the command relationship governing every Iranian-linked actor. Baghdad needs an actor-specific account of who supplies equipment, who issues instructions and who can enforce compliance.

Channel	Decision Baghdad must retain	Evidence of an Iraqi-led arrangement
Bilateral border cooperation	Scope, implementing authority and permitted measures	Written procedures and accountable incident handling
Military assistance	Recipient, custody and authorised use	Procurement and inventory records
Intelligence exchange	Access, dissemination and operational use	Defined mandates and access controls
Relations involving armed organisations	Authority over deployments and use of force	Compliance with lawful Iraqi orders
Crisis diplomacy	Negotiating position and commitments	Coordinated instructions to implementing institutions

These are assessment criteria. They avoid treating influence as a single quantity and focus instead on the decisions external relationships can affect.

A settlement needs protection, command and accountable cooperation

The strongest settlement would connect three institutional outcomes.

First, Iraq must be able to protect communities and strategic facilities sufficiently to make national security guarantees credible. Second, armed formations must operate through lawful command and disciplinary systems. Third, external partnerships must support capabilities without creating separate operational authorities.

Implementation should be sequenced around those outcomes. Restricting an autonomous capability without replacing a necessary security function can create opposition to reform. Providing new equipment without resolving command can strengthen the organisation receiving it while leaving national decision authority unchanged.

The appropriate assessment is therefore capability-specific and institution-specific: who controls the asset, who authorises its use, who sustains it and who investigates misuse.

Key judgments

• The coalition’s departure transfers responsibilities that require capability testing and dependable sustainment.
• Continuing advisory and bilateral cooperation can support Iraqi authority when mandates and recipients are clearly governed.
• Airspace protection and federal–regional coordination are central tests of the transition.
• Relations with Iran require defined state channels and separate assessments of armed networks.

What would change the assessment

Published readiness evaluations, tested federal–regional response procedures and functioning air-defence arrangements would strengthen confidence. Documented implementation of bilateral security procedures would clarify the scope of cooperation with Iran.

Open official record

The most consequential missing records are current capability assessments, operational arrangements for protecting airspace and implementation procedures for external security cooperation. Mission completion statements establish the transition; they provide limited evidence about the readiness of every institution inheriting its responsibilities. Conclusion of the Global Coalition’s Military Mission in Iraq — UK Ministry of Defence — Sep 2026.

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Iraq Dawn Operation: Power Struggle vs Anti-Corruption

Pillar III — Institutional Options and the Five-Year Sovereignty Outlook

Chapter 7 — Pathways to Financial and Security Resilience

Baghdad can widen its freedom of action over the five years to 6 October 2031 if it converts negotiated access, public expenditure and external assistance into institutions that continue functioning during political disagreement. The strongest pathway combines reliable financial administration, enforceable security authority and infrastructure that reduces essential-service vulnerability. Progress in one domain will remain fragile if disruption in another can force the government to abandon its decisions.

Resilience begins with implementation capacity

The relevant distinction is between obtaining temporary relief and reducing the need to seek it repeatedly. An exemption can restore an activity, a financing agreement can launch construction, and a political settlement can suspend confrontation. Durable reform emerges when Iraqi institutions can administer the arrangement, finance its continuing costs and enforce its obligations after the immediate negotiations have ended.

The IMF’s July 2025 assessment identifies several institutional priorities relevant to this process: restructuring state-owned banks, addressing capital and non-performing-loan problems, strengthening governance and digital infrastructure, improving anti-money-laundering controls, and increasing the effectiveness of procurement and public investment. These are recommendations from that consultation, rather than evidence that the reforms have been completed. IMF Executive Board Concludes 2025 Article IV Consultation with Iraq — IMF — Jul 2025 imf.org

Their strategic significance lies in the transmission mechanism. A bank with identifiable ownership, adequate capital and reliable transaction records can address a compliance inquiry with evidence. A ministry with accurate commitments and payment records can identify which services a disruption threatens first. A procurement authority that can establish delivery and maintenance obligations can prevent an equipment purchase from becoming an unsupported asset.

These improvements do not eliminate external pressure. They reduce the administrative weaknesses through which pressure can spread across otherwise unrelated activities.

Financial reform should preserve continuity while changing incentives

A credible reform programme needs to distinguish institutions that require restructuring from legitimate transactions that require continuity. Sudden restrictions imposed without a transition mechanism can interrupt lawful commerce and increase incentives to move activity into less transparent channels. Indefinite accommodation, however, can preserve the weaknesses that caused restrictions in the first place.

The appropriate sequence is to identify deficiencies, impose corrective obligations, establish usable compliant alternatives and then test whether transactions migrate into the improved system. The decisive evidence concerns the quality and completion of transactions, rather than the number of new rules issued.

Fiscal management requires a similar sequence. The IMF’s May 2025 mission statement recommended improved tax administration, stronger procurement and public financial management, and protection of productive investment through wider expenditure reform. Its electricity recommendations placed improved billing and collection before cost recovery through tariff increases, with protection for low-income users. Iraq: Concluding Statement of the 2025 IMF Article IV Mission — IMF — May 2025 imf.org

This sequencing matters politically. Requiring households or enterprises to pay more before the state provides a dependable service can undermine compliance and confidence. Conversely, providing infrastructure without establishing collection and maintenance arrangements can leave the government financing an expanding operating deficit. Resilience requires both service performance and a sustainable institutional relationship with its users.

Infrastructure can reduce vulnerability when operation follows construction

The World Bank approved US$900 million for the Iraq Transport Economic Corridors project on 4 June 2026. The project includes road investments, institutional strengthening, performance-based maintenance and a sequenced approach in which pilot results inform subsequent interventions. Its implementation structure includes the Roads and Bridges Directorate and strategic oversight involving national institutions and Kurdistan Region representatives. New US$900 million World Bank Financing to Improve Iraq’s Road Connectivity and Support Job Creation — World Bank — Jun 2026 worldbank.org

The sovereignty benefit would come from functioning transport routes, accountable maintenance and lower disruption to lawful movement. The approved financing establishes a programme and resources; it does not establish completed roads or realised economic gains.

This distinction should govern infrastructure policy across sectors. A facility increases resilience when it provides a service under conditions the Iraqi state can sustain. That requires working connections, maintenance funding, qualified personnel, procurement access and contractual remedies. An isolated asset can increase expenditure without reducing vulnerability.

Reform domain	Initial intervention	Evidence of durable improvement	Failure mechanism
Commercial banking	Correct ownership, capital and compliance deficiencies	Legitimate transactions complete through supervised institutions	Activity shifts into opaque intermediaries
Public expenditure	Record commitments and prioritise essential payments	Payment schedules remain credible during revenue stress	Unrecorded obligations accumulate
Electricity	Connect supply investment to collection and maintenance	Delivered power, collections and availability improve together	New capacity lacks fuel, grid access or operating funds
Transport	Couple construction with asset management	Roads remain serviceable after initial rehabilitation	Maintenance loses funding after construction
Security institutions	Link personnel, command and equipment records	Orders and disciplinary decisions remain enforceable	Formal structures coexist with autonomous authority
External cooperation	Define mandates, recipients and review procedures	Assistance continues under Iraqi oversight	Parallel partnerships bypass national coordination

The table sets out analytical tests; it does not report completed Iraqi reforms.

Four pathways over the five-year horizon

The pathways below describe alternative institutional trajectories. They can overlap or succeed one another, and no numerical probabilities are assigned.

Pathway	How it develops	Consequence by 2031	Evidence that would strengthen the assessment
Administrative consolidation	Reforms become routine across finance, procurement and security management	Baghdad gains more dependable implementation authority	Audited accounts, enforced orders and sustained service availability
Recurrent negotiated accommodation	Disputes are resolved through exemptions and political bargains	Essential activities continue, but decisions remain costly to sustain	Repeated temporary arrangements with limited institutional follow-through
Uneven consolidation	Selected institutions improve while others retain separate practices	The state becomes more capable in specific sectors but remains exposed elsewhere	Strong agency performance alongside unresolved inter-agency or command disputes
Compound disruption	Financial restrictions, security incidents and service failures reinforce one another	Government attention shifts from reform to emergency bargaining	Simultaneous payment delays, interrupted operations and unenforced decisions

Recurrent accommodation is the central planning case, because the verified record contains continuing negotiations, advisory instruments and major investment programmes, while the decisive evidence of sustained implementation remains incomplete. Administrative consolidation is a credible improving pathway if those instruments produce enforceable procedures and operating results. Compound disruption should be treated as a contingency requiring preparation, rather than as an inevitable outcome.

The principal countervailing force is Iraq’s existing institutional framework. Banking supervision, cabinet authority, military command structures and external cooperation channels provide mechanisms through which reform can proceed. The constraint is whether those mechanisms remain effective when compliance imposes costs on influential actors.

Disruption becomes strategic when failures cross institutional boundaries

A single interruption need not create a sovereignty crisis. The danger increases when institutions cannot contain it.

An aviation restriction can become a broader political dispute if service providers receive inconsistent instructions and travellers face unexplained cancellations. A security incident can interrupt project execution if authorities cannot protect personnel or establish responsibility. Payment arrears can reduce maintenance, which lowers service availability and increases pressure for emergency expenditure.

These are conditional mechanisms, not assertions that every link is currently occurring. Their importance lies in identifying where a government can intervene before disruption spreads.

Disruption	Immediate institutional task	Evidence that containment is working	Escalation signal
Transaction interruption	Establish the legal issue and affected counterparties	Documented resolution of legitimate transactions	Unrelated transactions are affected
Essential-service failure	Restore supply through an authorised contingency procedure	Recovery times and service availability are recorded	Repeated emergency contracting
Refusal of a security order	Establish responsibility and apply lawful procedures	Compliance or an enforceable adjudicated outcome	Repeated bargaining substitutes for command
Threat to infrastructure	Protect personnel and investigate the incident	Work resumes under a credible protection arrangement	Contractors withdraw or suspend multiple projects
Disputed external commitment	Reconcile diplomatic and implementing instructions	Ministries apply one authoritative interpretation	Agencies issue conflicting instructions

Evidence must demonstrate persistence

A durable reform should survive at least three kinds of stress: a leadership change, a revenue interruption and a politically contested decision. These are proposed assessment conditions, rather than existing statutory tests.

Monitoring should focus on persistence of performance. Useful records include transaction-resolution times, expenditure commitments, arrears by age, equipment availability, maintenance completion and compliance with contested orders. Public reporting can disclose aggregate results while protecting operationally sensitive details.

A reform that works only under intensive foreign supervision has delivered assistance-dependent performance. The stronger result is an Iraqi institution that can preserve the procedure, replace personnel and correct failures through its own lawful authority.

Key judgments

• Resilience depends on institutions that can sustain decisions through disagreement and disruption.
• Financial, security and infrastructure reforms need compatible sequencing.
• Repeated negotiated accommodation remains the prudent planning case until implementation evidence supports a stronger judgment.
• The most consequential downside is the interaction of failures across institutions.

What would change the assessment

Confidence would increase with sustained reductions in unresolved transaction problems and payment arrears, independently auditable project performance, and verified enforcement of contested government decisions. Confidence would weaken if new programmes repeatedly require emergency exceptions or accumulate operating obligations without dependable funding.

Open official record

The decisive records are institution-level implementation reports, audited commitments and arrears, project operating results, and evidence of compliance with government orders. Published reform recommendations and financing approvals establish direction and resources; they do not establish achieved resilience.

Chapter 8 — European Interests and Support for Iraqi Institutions

European support can widen Baghdad’s options when it provides usable finance, technical capacity and dependable services under Iraqi authority. Its practical limits differ across Italy, France, Germany, the United Kingdom and EU institutions. Commercial exposure, development commitments and security mandates must therefore be assessed separately, with each instrument judged by what it can deliver and the obligations it creates.

Italy: energy exposure, infrastructure finance and institutional training

Italy’s material interests extend across energy production, engineering, infrastructure and access to the Iraqi market. In December 2025, the Italian Foreign Ministry identified the presence of Italian companies in energy, infrastructure and healthcare and expressed interest in major connectivity projects. This is a stated economic policy orientation, rather than evidence that every proposed corridor or contract has been financed. Tajani meets Iraqi Foreign Minister Fuad Hussein. Discussion on Gaza, Syria, Lebanon, Iran — Italian Ministry of Foreign Affairs — Dec 2025 esteri.it

Eni’s current account of its Iraqi activities identifies development of the Al-Zubair field, associated-gas use for electricity generation, and programmes to expand water availability and treatment capacity. Its description of 2025 activity provides a concrete basis for Italy’s interest in production continuity, reliable infrastructure and contractual implementation. Our work in Iraq — Eni — undated, consulted Oct 2026 Eni

Italy also has an export-finance channel. In May 2025, the Foreign Ministry reported a SACE agreement with the Trade Bank of Iraq facilitating €1 billion in export credit, signed the previous year. That figure describes the announced framework; it should not be presented as money already disbursed or financing still available in full. Undersecretary Tripodi in Iraq: meetings with the Minister of Trade, Deputy Minister for Bilateral Relations, and visit to the Italian military contingent — Italian Ministry of Foreign Affairs — May 2025 esteri.it

The feasible contribution is transaction-specific: finance equipment and services whose borrower, procurement process, repayment obligations and operating requirements are identifiable. Water, electricity and industrial maintenance projects can provide a resilience benefit when financing includes commissioning, training and lifecycle support. Export promotion alone does not establish that benefit.

Italy’s military posture has changed. The Defence Ministry stated on 29 September 2026 that withdrawal was largely completed in March, that bilateral training and capacity cooperation would continue, and that two Carabinieri remained under the Iraqi-authorised EUAM mission. Comunicato Stampa n. 36 del 29 Settembre 2026 — Italian Ministry of Defence — Sep 2026 difesa.it

This separates three instruments: the concluded military presence, continuing bilateral cooperation and a limited EU advisory contribution. Italy can support management, training and civilian security functions through those channels, subject to applicable mandates and Iraqi consent. Their effectiveness should be measured through institutional outcomes, including trained instructors retained in service, usable procedures and maintained equipment.

Italian development cooperation provides another channel. The embassy identifies AICS offices in Baghdad and Erbil and programmes addressing essential services, livelihoods, environmental pressures and displaced-person returns. Development cooperation — Italian Embassy in Baghdad — undated, consulted Oct 2026.

Italy’s strongest feasible role is consequently a coordinated combination of commercial finance, technical support and institutional training, with Iraqi authorities determining priorities and maintaining a common implementation record.

France: integrated energy investment and regional diplomacy

France’s material exposure includes the TotalEnergies-led Gas Growth Integrated Project. The company identifies consortium interests of 45% for TotalEnergies, 30% for Basrah Oil Company and 25% for QatarEnergy, and an overall investment of approximately US$10 billion. These are company-reported project parameters. GGIP : un projet multi-énergies au service de l’indépendance énergétique de l’Irak — TotalEnergies — undated, consulted Oct 2026 TotalEnergies.com

Its relevance to Iraqi resilience comes from the relationship between gas recovery, electricity, water supply and field development. Each component addresses a different operational requirement. Their integration can improve reliability if construction is followed by connected, sustained operation.

GGIP component	Announced parameter or function	Evidence required before treating the benefit as achieved
Solar generation	1 GWac planned facility	Commissioning and metered electricity delivered
Seawater supply	First-phase treatment capacity of 5 million barrels of water per day	Operating treatment and distribution infrastructure
Ratawi development	Phase-two target of 210,000 barrels of oil per day from 2028	Verified production and functioning associated facilities
Gas recovery	Processing associated gas for power supply	Sustained gas delivery and power-plant utilisation

Sources: Iraq: TotalEnergies Launches the Construction of the Final Two Major Projects of the GGIP — TotalEnergies — Sep 2025; GGIP : un projet multi-énergies au service de l’indépendance énergétique de l’Irak — TotalEnergies — undated, consulted Oct 2026. totalenergies.com

The planning dates remain announced schedules. They cannot establish completion at the October 2026 cut-off. France’s practical contribution would be to support predictable execution, technical skills and institutional coordination around delivery, while recognising that commercial partners and Iraqi authorities carry different responsibilities.

France also maintains a regional diplomatic channel. In February 2026, Foreign Minister Jean-Noël Barrot described cooperation on counterterrorism, regional stability and cross-border transport, water and electricity connections, and stated an intention to work toward a third Baghdad Conference when conditions permitted. Irak — Conférence de presse conjointe de Jean-Noël Barrot et de Fouad Hussein — French Ministry for Europe and Foreign Affairs — Feb 2026 France Diplomatie

That channel can support de-escalation and technical discussion among neighbouring states. Its value depends on implementable commitments concerning particular services or disputes. A conference creates negotiating access; subsequent agreements, responsible agencies and performance records determine whether that access produces institutional gains.

France’s development instruments offer a further route. Its official account identifies AFD work on water, health and post-conflict recovery and Expertise France programmes supporting employment and entrepreneurship. These provide feasible civilian channels without requiring an assumed continuation of the former coalition posture. Irak — Politique et économie — French Ministry for Europe and Foreign Affairs — Apr 2026.

Germany: consent-based security cooperation and administrative development

Germany’s current deployment record illustrates the importance of host-state authority. The German-language government account records that its armed-forces deployment in Iraq ended on 30 September 2026, after Iraq withdrew consent, while Germany remained interested in security cooperation and continued its OIR presence in Jordan. Bundeswehreinsatz im Irak verlängert — German Federal Government — updated account consulted Oct 2026 Bundesregierung

The prior mandate ceiling therefore cannot serve as a current deployed-personnel count. Any renewed in-country military arrangement would need an applicable German authorisation and Iraqi consent. Germany’s 30 September press conference explicitly identified the loss of host-state consent as the loss of the deployment’s basis. Regierungspressekonferenz vom 30. September 2026 — German Federal Government — Sep 2026 bundesregierung.de

Germany’s continuing civilian instruments are substantial. BMZ reports a €117.7 million commitment made in July 2024, including approximately €73.3 million for transitional assistance and displaced-person and host-community programmes. Its current priorities include inclusive institutions, economic development, employment, climate and energy. These are dated commitments and programme orientations, rather than a new October 2026 funding announcement. Iraq — German Federal Ministry for Economic Cooperation and Development — undated, consulted Oct 2026 BMZ

Germany’s feasible contribution is particularly relevant to institutional absorption: vocational skills, administrative procedures, local service management and economic regulation. Such assistance can reduce the gap between an infrastructure asset and the Iraqi capacity required to operate it.

The implementation risk is fragmentation. Separate projects can each achieve their immediate objectives while creating incompatible reporting systems or staffing demands. German support would have greater institutional value if Iraqi agencies define a common operating process and incorporate training, data and maintenance into their own budgets.

United Kingdom: export finance, energy redevelopment and defence cooperation

The January 2025 UK–Iraq joint statement announced a trade and export package of up to £12.3 billion, supported by export agreements and a UK Export Finance memorandum. It also described a strategic bilateral defence relationship covering military education, advisory support and institutional reform. The package is an announced commercial framework, not a measure of completed investment. Joint Statement between the Prime Minister of the United Kingdom and the Prime Minister of Iraq — UK Government — Jan 2025 GOV.UK

Selected January 2025 announcement	Stated value	Correct interpretation
Comprehensive water project	Up to £5.3 billion in UK exports	Announced project value
Basra water project	Up to £3.3 billion in UK exports	Announced project value
Al-Qayyarah airbase rehabilitation	£500 million	Announced rehabilitation project
Border-security equipment	£66.5 million	Announced equipment provision

Source: Joint Statement between the Prime Minister of the United Kingdom and the Prime Minister of Iraq — UK Government — Jan 2025. These entries are components of the wider package and should not be added to its headline value.

The distinction between rehabilitation and capability is particularly consequential. An airbase project does not establish operational air-defence coverage without the necessary sensors, command arrangements, personnel and sustainment. Water infrastructure requires intake, treatment, power, distribution and collection arrangements. Export finance can support those systems, but transaction approval and delivery remain separate stages.

The Kirkuk redevelopment also creates material commercial exposure. In July 2026, ConocoPhillips announced an agreement to acquire a 42% interest in BP Energy Company of Kirkuk Limited, with closing expected by year-end and subject to approvals and other conditions. Its release describes a contract covering the Kirkuk field’s Baba and Avanah domes and three adjacent fields. The announcement establishes a proposed transaction, not verified completion. ConocoPhillips reaches agreement supporting redevelopment of producing oil fields in Iraq — ConocoPhillips — Jul 2026 ConocoPhillips

UK policy instruments can support Iraqi resilience through project finance, contractual expertise and institutionally governed defence cooperation. Military equipment remains subject to licensing: UK statutory guidance identifies the relevant export-control process and cautions against assuming approval before a licence is granted. Iraq sanctions: statutory guidance — UK Government — current guidance consulted Oct 2026 GOV.UK

The UK’s most consequential implementation test is whether financing produces service availability without leaving Iraqi borrowers with repayment obligations for delayed or underperforming assets.

European Union: civilian reform and a common institutional framework

The EU–Iraq Partnership and Cooperation Agreement entered into force on 1 August 2018. It provides an established framework for institutional dialogue, distinct from individual national commercial programmes. Partnership and Cooperation Agreement between the European Union and its Member States and the Republic of Iraq — Council of the EU — treaty record Consilium

The October 2025 Cooperation Council identified migration, trade, development, energy and civilian security reform among the priorities for continuing engagement. These subjects provide channels through which Iraqi authorities can seek coordinated support. Joint Press Release — 4th EU–Iraq Cooperation Council — Council of the EU — Oct 2025 Consilium

For EUAM Iraq, the controlling April 2026 decision extends application through 31 October 2026 and establishes a financial reference amount of €79,078,620.21 for 1 May 2024–31 October 2026. This is a multi-year reference amount, not an annual expenditure figure or verified outlay. Council Decision (CFSP) 2026/902 — Council of the EU — Apr 2026 EUR-Lex

The mission’s civilian remit includes strategic advice on security-sector reform, institutional reform, organised crime, corruption and integrated border management. These functions can improve the procedures through which Iraqi institutions coordinate and exercise authority. They do not confer command over Iraqi armed formations. EUAM Iraq: Council extends the mandate of the EU advisory mission on security sector reform until 2026 — Council of the EU — Apr 2024.

European support also operates within European restrictions. In September 2025, the Council reintroduced Iran-related financial, trade and transport measures, including asset freezes and restrictions concerning Iranian cargo aviation. An EU-supported transaction therefore requires assessment under the applicable European regime as well as any other relevant jurisdiction. Iran sanctions snapback: Council reimposes restrictive measures — Council of the EU — Sep 2025 Consilium

Coordination should follow Iraqi institutional responsibilities

European programmes would deliver greater value through an Iraqi-led register identifying the responsible agency, financing instrument, implementation stage, operating costs and expected outcome of each intervention.

Such coordination would allow ministries to distinguish grants from loans, export-credit frameworks from approved transactions, and advisory mandates from equipment contracts. It would also expose unfunded maintenance obligations before projects reach commissioning.

Instrument	Contribution it can realistically make	Condition for institutional value
Export credit	Finance identifiable goods and services	Sustainable borrower obligations and verified delivery
Development assistance	Support services, skills and administration	Iraqi ownership of procedures and continuing costs
Energy investment	Expand supply and productive infrastructure	Connected operation and sustained availability
Security advice	Improve planning, management and oversight	Valid mandate, consent and accountable beneficiaries
Diplomatic dialogue	Clarify commitments and contain disputes	Implementing agencies and review procedures

These instruments cannot substitute for Iraqi decisions concerning appointments, budgets, enforcement or external commitments. Their strategic value is to make those decisions more practicable.

Key judgments

• Italy can combine energy exposure, export finance and institutional training.
• France can support integrated energy delivery and regional diplomatic arrangements.
• Germany retains significant civilian instruments following the end of its deployment.
• The UK’s finance and project channels require careful separation of announcements, approvals and operating results.
• EU institutions can support civilian reform and coordination within their mandates and legal constraints.

What would change the assessment

The assessment would strengthen with project-level disbursement and commissioning records, financed maintenance, measurable advisory outcomes and renewed mandates where required. It would weaken if commercial commitments expand faster than Iraqi capacity to implement and sustain them.

Open official record

The principal gaps concern current project execution, available financing under announced frameworks, continuing operating costs and the institutional arrangements governing future security cooperation. These records determine the usable contribution of European support.

Chapter 9 — Courses of Action and Final Net Assessment

Baghdad should pursue a sequenced programme that protects essential continuity, makes institutional performance auditable and expands commitments only when the state can administer and sustain them. Its freedom of action will grow when it can absorb a refusal, enforce a decision and maintain a service without immediately returning to emergency bargaining.

Authority must precede implementation

The Iraqi Constitution assigns the cabinet responsibility for policy implementation, budget preparation and negotiation of international agreements; it identifies the prime minister as commander-in-chief and provides parliamentary and judicial oversight functions. These provisions establish the institutional basis for action, while specific measures still require the applicable legislation, appropriations and procedures. Constitution of the Republic of Iraq, Articles 78, 80, 84 and 87–88 — Supreme Judicial Council — 2005.

The recommended programme should use those institutions. A coordination mechanism can reconcile instructions and monitor delivery, but it should not acquire powers belonging to regulators, operational commanders, parliament or courts.

Implementation also requires a clear allocation of responsibility. For every measure, the government should identify who approves it, who executes it, who pays for it and who reviews failure. Ambiguity at those points allows obligations to move between institutions without an accountable decision.

Courses of action

The time ranges below are analytical planning estimates, conditional on legal authority, funding, access to records and institutional cooperation. They are not announced government schedules.

Course of action	Authority and responsible institutions	Expected effect	Implementation burden	Indicative time to initial effect
Establish an essential-payment continuity plan	Cabinet and Finance Ministry; coordination with CBI and spending agencies	Identify critical obligations and authorised contingencies	High data-reconciliation burden; moderate procedural burden	0–6 months
Consolidate aviation implementation instructions	Competent Iraqi aviation and airport authorities; Foreign Ministry for external clarification	Reduce contradictory decisions affecting authorised operations	Moderate legal and operational burden	0–6 months
Introduce auditable security-management pilots	Commander-in-chief and competent security institutions; lawful oversight	Test personnel, procurement, custody and command procedures	High political and institutional burden	6–18 months
Prioritise maintainable protection capabilities	Cabinet, defence and relevant federal–regional authorities	Improve tested protection of priority sites and services	High procurement, staffing and sustainment burden	12–36 months
Link infrastructure funding to operating performance	Finance Ministry, sector ministries and contracting authorities	Reduce unfinished or unsupported assets	High contractual and technical burden	12–36 months
Restructure vulnerable banking institutions	CBI and competent owners and fiscal authorities	Improve governance and legitimate transaction continuity	High financial and supervisory burden	18–60 months

The first measures improve visibility and procedural coherence. They should begin before major new procurement because they establish the information needed to assess affordability and institutional readiness.

Security-management pilots should cover a complete operational process within a defined institution: verified personnel, authorised appointments, procurement, equipment custody and disciplinary access. A partial pilot that records equipment while excluding command would provide an incomplete test.

Protection capabilities should be selected through a threat and sustainment assessment. Procurement must include the communications, personnel, maintenance and decision procedures necessary to use equipment. Expanding inventories without those elements can increase the state’s obligations while delivering limited operational benefit.

Reversibility and second-order consequences

Course of action	Reversibility	Second-order consequence	Principal risk and safeguard
Payment continuity plan	Procedures are readily adjustable	Clear priorities expose competing claims on public funds	Political interference; require documented exceptions
Aviation instructions	Adjustable within applicable authorisations	Greater predictability supports lawful travel and services	Overbroad interpretation; maintain an authorised clarification process
Security-management pilots	Procedures adjustable; personnel decisions less reversible	Verified control can improve access to external assistance	Pilots exclude sensitive units indefinitely; define expansion criteria
Protection procurement	Limited after major contracts	Can alter regional confidence and operational expectations	Unsustainable lifecycle costs; fund operation before expansion
Performance-linked infrastructure	Contract changes can be difficult	Stronger delivery standards affect contractors and lenders	Unrealistic metrics shift disputes rather than resolve them; use independently verifiable outputs
Bank restructuring	Limited once losses and capital changes are recognised	Alters ownership, credit and employment incentives	Costs migrate to the state without governance change; make support conditional on enforceable restructuring

Reversibility should influence sequencing. Measures that improve records and procedures can be adjusted as evidence develops. Large contracts, recapitalisations and institutional reorganisations create obligations that are harder to unwind.

The principal fiscal safeguard is to assess the full obligation before approval. A loan-funded asset carries debt service; equipment carries staffing and maintenance; an institutional settlement can carry salaries and pensions. Those costs should enter the decision at inception.

Expand programmes through evidence gates

Expansion should depend on demonstrated capability. The table establishes proposed decision rules rather than numerical targets unsupported by a baseline.

Decision	Evidence required to proceed	Reason to pause or redesign
Expand a financial-access arrangement	Lawful transactions complete through identified counterparties	Persistent unexplained failures or unresolved ownership
Extend an aviation arrangement	Reliable operations and attributable compliance decisions	Services depend on conflicting or informal instructions
Scale a security pilot	Orders, access controls and disciplinary procedures function	Cooperation ends when a contested decision arises
Order additional protection equipment	Tested use and funded sustainment of initial capability	Low availability or missing command integration
Expand infrastructure financing	Verified delivery and credible operating arrangements	Growing arrears, uncompleted connections or unsupported maintenance
Continue external assistance	Iraqi institutions retain trained staff and procedures	Results disappear when external support reduces

These gates make additional commitment conditional on performance. They also give Baghdad a defensible basis for asking partners to change assistance that is failing to produce usable capacity.

WordPress scheme — how institutional gains reinforce decision authority

This qualitative scheme illustrates the recommended relationship between three reform domains and Baghdad’s capacity to sustain decisions. The depth styling carries no quantitative meaning.

A five-year implementation sequence

The sequence should begin with visibility and continuity, proceed to enforceable institutional change, and then expand capability. The periods are planning windows, with progression dependent on the evidence gates.

Planning window	Priority	Necessary output
October 2026–October 2027	Reconcile authority, obligations and implementation instructions	Identified decision-makers, essential-payment plan and common programme register
October 2027–October 2029	Test institutional reform and deliver maintainable services	Auditable security pilots, bank restructuring milestones and verified operating performance
October 2029–October 2031	Expand successful arrangements and reduce recurrent exceptions	Procedures surviving leadership changes and sustained capability under Iraqi management

This sequence does not require postponing urgent protection or service restoration. Emergency action can proceed where necessary, provided its authority, costs and termination or incorporation into normal procedures are recorded.

The risk is that the first phase becomes permanent diagnosis. To prevent that outcome, each information exercise should be attached to a decision it enables: whether to release funds, renew permission, replace a commander, accept delivery or expand a programme.

Final net assessment

Iraq’s sovereignty is constrained by the interaction of external financial authority, domestic armed power and uneven implementation capacity. The verified record establishes functioning legal institutions, continuing diplomatic access and substantial channels for investment and assistance. It also leaves important questions about execution, sustainment and enforceability unresolved. The appropriate judgment is therefore that Baghdad possesses meaningful instruments of action, but its capacity to sustain difficult decisions remains the decisive variable.

Over the five-year horizon, the most plausible improvement is sectoral and cumulative. Better supervised banking can preserve lawful commerce; stronger expenditure administration can protect essential services; reliable energy and transport systems can reduce disruption; enforceable command can make security commitments credible. Each improvement creates negotiating space because the government becomes less vulnerable to immediate failure.

External relationships will remain important. Baghdad can obtain greater flexibility from them when it defines the assistance required, controls its use and can sustain the resulting capability. An expanded list of partners offers limited benefit if each project creates a separate reporting system, an unfunded obligation or a parallel authority.

The strongest settlement would combine dependable financial access with security institutions capable of implementing lawful orders and infrastructure that continues operating during regional stress. Its political durability would depend on distributing the costs of reform through transparent decisions, protecting essential services and ensuring that enforcement remains subject to law.

By October 2031, the practical measure of progress should be the range of decisions Baghdad can maintain without disruptive concessions: preserving authorised travel, paying critical obligations, enforcing deployments, protecting territory, sustaining facilities and administering external agreements. Iraq will widen its freedom of action when those functions remain available through crisis and disagreement.

Key judgments

• Baghdad should prioritise continuity and enforceable implementation before expanding costly commitments.
• Financial, security and infrastructure measures reinforce one another when Iraqi institutions control their operation.
• European support offers useful instruments, each with specific legal, financial and operational limits.
• The five-year objective is a measurable reduction in the cost of sustaining Iraqi decisions.
• Durable reform requires procedures that survive changes of leadership and external pressure.

What would change the assessment

A consistent record of enforced decisions, sustained services, credible accounts and reduced dependence on emergency exceptions would support a stronger sovereignty assessment. Persistent obstruction, operating failures and unrecorded obligations would support a weaker one.

Open official record

The final assessment turns on four documentary sets: audited public obligations and payments; verified security-management outcomes; infrastructure operating and maintenance records; and operative external agreements with their implementation results. Together, they would establish whether Baghdad’s institutional gains have become a durable expansion of decision authority.

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