Key Takeaways
- US forces are set to withdraw from their last bases in Iraq on Wednesday.
- The US has maintained control over Iraq's oil revenues through the Federal Reserve Bank of New York.
- The withdrawal is seen as a strategic shift, with Iran expected to gain influence in the region.
US forces are scheduled to withdraw from their last bases in Iraq on Wednesday, marking a significant shift in the country's security landscape. This move, which has been planned under the Biden administration, is part of a broader strategy to reduce America's overseas military presence.
The withdrawal is seen as a strategic shift, with Iran expected to gain influence in the region. Iran and its allies have celebrated the US departure, viewing it as an opportunity to expand their own influence.
Since the 2003 invasion, the US has maintained control over Iraq's oil revenues through the Federal Reserve Bank of New York. This control has given Washington significant leverage over Baghdad's affairs, with implications for regional dynamics involving Iran.
The management of Iraq's oil income through the Federal Reserve Bank of New York began with the establishment of the Development Fund for Iraq (DFI) by the Coalition Provisional Authority (CPA) led by the US. The DFI eventually became an account of the Central Bank of Iraq at the New York Federal Reserve, as it remains today.
Oil is Iraq's most important revenue source, making up about 90% of the state budget. This gives Washington significant sway over the country's economic and political stability. When the Iraqi government asked US troops to leave in 2020, Washington reportedly threatened to cut Iraq's access to the New York Federal Reserve funds, with Baghdad ultimately backing down.
The arrangement has endured for so long because it helps anchor Iraq's financial stability and safeguards state finances. It boosts international confidence in the management of oil income, eases access to US dollars needed for trade and imports, and protects revenues from external claims and financial shocks, including claims by creditors and lawsuits.
While Iraq has gained more control over its financial affairs since the early years of the occupation, the link highlights the enduring influence of the US on the economic landscape of Iraq, even as the latter seeks to assert sovereignty and independence.
The scheduled withdrawal is part of a broader trend of reducing America's overseas military presence. The US has already withdrawn from Afghanistan, where it was unable to prevail over the Taliban regime or enforce the 2020 Doha Accord. The resulting void in Afghanistan has led to increased instability and a terror hub.
Iraq is unlikely to be any different. The resulting void is feared to be filled by pro-Iran Shia militias, as well as remnants of the Islamic State and Al Qaeda. The fact that Syria has broken away and is no longer under Tehran's influence could be an added factor of instability. Multiple militant organisations operating freely in the Levant could turn Iraq into a bastion for their nefarious activities.
