In the immediate aftermath of the Iraq invasion, U.S. President George W. Bush issued Executive Order 13303 (EO 13303) to protect the Development Fund for Iraq (DFI). The primary function of the order was to safeguard the DFI which served as a central repository for revenue generated from Iraqi oil sales. The order functioned as a legal shield, protecting it from potential attachment or seizure through foreign lawsuits or judgements. This ensured that resources from Iraqi oil sales would not be diverted towards settling outstanding debts or legal claims from foreign entities. By protecting the fund, EO 13303 ensured that these crucial funds could be directly channelled towards their intended purpose: the reconstruction and stabilisation of Iraq following the war. Successive U.S. administrations have continued to renew it, with President Joe Biden’s administration being the most recent, having announced its renewal on May 22, 2024. The renewal cited ongoing obstacles to the orderly reconstruction of Iraq, the restoration and maintenance of peace and security, and the development of its political, administrative, and economic institutions. The order mentions they "pose an unusual and extraordinary threat to the national security and foreign policy of Iraq and the United States.” (1)

Examining the context that necessitated the order's introduction and renewal is crucial to understanding its implications. The devastating eight-year Iran-Iraq War (1980-1988) and the ill-fated 1990 invasion of Kuwait left Iraq burdened by substantial external debt and internal political instability. This backdrop is essential for understanding the U.S.-led invasion in 2003, ostensibly justified by the presence of Weapons of Mass Destruction (WMD) programs. The U.S. harboured the goal of establishing a stable, democratic ally in the region, however the Coalition Provisional Authority's (CPA) occupation of Iraq until 2004 proved a strategic misstep. Dismantling the Iraqi army and marginalising Sunni Arabs created a power vacuum that quickly filled with sectarian violence and a rise in Iranian influence.

These factors contextualise the present situation in Iraq. Despite two decades having passed since the 2003 invasion, Iraq continues to grapple with the war's consequences. The persistent challenges of terrorism, economic instability, political pressure to dissolve the international coalition's presence, sectarian divisions, and the delicate dance between Iran and the U.S. all trace back to the origins of the war. Also, managing complex relations with regional powers like Saudi Arabia and Turkey adds another layer of difficulty. Nevertheless, there is a persistent, omnipresent factor that links these issues and offers an intriguing avenue for analysis: the question of Iraq's ability to assert its sovereignty amidst these external and internal challenges.

A Historical Retrospective

Iraq in the aftermath of of the Gulf Wars

The circumstances leading to the executive orders protecting Iraq’s oil revenues can be traced back to Iraq’s economic position following two key geopolitical events under Saddam Hussein’s Baathist government: the Iran-Iraq War (1980-1988) and the Iraqi invasion of Kuwait in 1990.

The eight-year long Iran-Iraq war erupted from a confluence of long-standing issues and regional ambitions. Decades of unresolved border disputes over the Shatt al-Arab waterway, a vital resource, created friction between the two countries. The 1975 Algiers Accord, intended to settle these disputes by demarcating the river boundaries, instead became a source of deep resentment for Saddam Hussein. He viewed the agreement as a humiliating concession to Iran, believing it compromised Iraq's sovereignty by potentially granting Iran greater control over the waterway and restricting Iraq's ability to navigate freely and exploit resources within its own territory. This perception of diminished sovereignty fueled tensions and contributed to the broader climate of mistrust that characterised the relationship between the two nations.

Beyond border disputes, sectarian issues  have also been a key cause for discontentment between the two nations. Under Saddam Hussein's regime, the Sunni minority held dominant political and military positions, while the Shia majority faced systematic marginalisation and oppression. Iran had long positioned itself as the protector of Shia interests globally and supported some Iraqi Shia groups, contributing to another reason for distrust between the two nations. This sectarian imbalance grew even more tense when the Iranian Revolution in 1979 resulted in a neighbouring Shia theocracy for Iraq. Both Baghdad and Tehran aspired to be the dominant power in the Persian Gulf, and the presence of vast oil reserves in the region heightened the stakes. Saddam Hussein may have seen an opportunity to exploit perceived Iranian weakness following the revolution, potentially solidifying his own position.

The war became a regional proxy conflict, drawing in other Arab states and the superpowers at the time. The United States and the Soviet Union both provided varying degrees of support to the warring parties, further escalating the tensions. The war also had a destabilising effect on the Persian Gulf region, with the potential for future conflict a constant worry for the international community. Despite the devastating human and economic toll of the war, neither side emerged with a decisive victory. 

Impact of the international sanctions regime

Iraq's economy was severely impacted by the war with Iran. Military spending during this period amounted to $120 billion, which was several times higher than the oil revenues during the same period, resulting in a substantial five-year deficit of $73.3 billion. (2) By 1988, the Iraqi economy was exhausted, generating only a fraction of its pre-war income. Furthermore, Iraq's heavy dependence on oil revenue left it vulnerable to fluctuations in global oil prices, a factor that further strained the nation's finances during the 1980s. Beyond these broad economic challenges, Iraq faced specific grievances related to oil production. The quotas established by Gulf states led to a surplus in the market, driving down prices and hindering Iraq's ability to combat inflation and rebuild after the war. Additionally, Iraq accused Kuwait of slant drilling into a shared oil field, perceiving this as a deliberate act of economic aggression.

The economic crisis was compounded by a substantial international debt burden that left Iraq owing a significant sum to foreign creditors, and these debts continued to accrue even as international reserves dwindled. (3) Moreover, the regime's economic policies exacerbated internal inequalities, favouring elite groups and widening the income gap. Finally, the collapse of ambitious development plans due to financial constraints further hampered Iraq's economic prospects.

These factors played a significant role in Saddam Hussein's decision to invade Kuwait, which was seen as a shortcut to resolve Iraq's economic struggles and debt issues. By seizing control of Kuwait's oil reserves, Iraq anticipated significant economic benefits from the invasion, including increased oil production quotas, higher oil income, and an enhanced ability to finance development projects and imports. (4) On 2 August 1990, Iraqi troops invaded and occupied Kuwait, leading to immediate international condemnation and a series of United Nations (UN) sanctions aimed at compelling Iraq to withdraw.
The United Nations Security Council (UNSC), through Resolution 661, adopted on August 6th, 1990, imposed comprehensive sanctions on Iraq. These measures, designed to pressure Iraq into compliance with international norms and promote regional stability, resulted in a period of significant economic hardship and a humanitarian crisis for the Iraqi people. The sanctions targeted Iraq's vast oil reserves which were its primary source of revenue, resulting in a substantial decline in Iraq's GDP, estimated at around two-thirds. (5) The government's ability to provide essential services and infrastructure deteriorated significantly due to the lack of income. Prices for basic necessities soared, while incomes plummeted. Widespread unemployment and a significant outflow of skilled workers further exacerbated the economic crisis. Beyond financial hardship, the sanctions contributed to a dire humanitarian situation for the Iraqi population. Shortages of food, medicine, and clean water became commonplace. Reports emerged indicating a significant increase in child mortality rates, with estimates suggesting hundreds of thousands of children died from malnutrition and preventable diseases. The severity of the humanitarian crisis led to international criticism and debate, with some senior UN officials, such as Denis Halliday, Irish diplomat and Hans von Sponeck, German diplomat, resigning in protest over the impact of the sanctions on civilians. (6)

In response to the growing humanitarian concerns, the UN established the Oil-for-Food Program in 1996. This initiative allowed Iraq to sell a limited amount of oil under UN supervision, with the proceeds used to purchase essential goods. While the program provided some relief, its effectiveness was limited by several factors. The U.S., a key player in the Security Council, blocked the import of certain goods deemed essential for infrastructure repair. This restricted Iraq's ability to address its humanitarian needs effectively. Some argue that this was a deliberate strategy by the US to weaken the Iraqi regime. Additionally, the Americans may have had national security concerns regarding "dual-use" goods that could potentially be used for military purposes. However, these concerns limited the import of critical repair equipment for essential infrastructure.

The sanctions also created an environment conducive to smuggling and other illegal activities, further undermining efforts to address the humanitarian crisis. The Oil-for-Food Program itself faced controversy. Allegations of widespread corruption surfaced, with accusations of bribery and kickback schemes involving companies, individuals, and even UN personnel. (7) These allegations added to the already damaged reputation of both the Iraqi government and the UN system. The primary goal of the sanctions was to pressure Iraq into adhering to international standards and resolutions, fostering stability in the region, and halting any further acts of aggression. However, the long-term impact of the sanctions, combined with other factors such as the Gulf War and internal policies of the Iraqi government, led to severe humanitarian consequences and economic devastation in Iraq that continue to pose problems for Iraq today.

Iraq faced two main types of economic challenges due to the sanctions that continue to persist today, the first being significant sovereign debt. To address this financial predicament, the U.S. played a pivotal role in facilitating debt relief through the Paris Club negotiations (8) which allowed Iraq to start afresh. However, debts related to UN resolutions, particularly those to Kuwait, were not forgiven. Iraq paid approximately $52 billion in damages to Kuwait over 19 years, becoming the only country in history to pay its entire debt under Resolution 1483. (9) Saudi Arabia also claimed reimbursement for war expenses, during the Iraq-Iran war, leading to ongoing disputes with Baghdad. Under this arrangement, a majority of countries agreed to absolve Iraq of its official sovereign debt, providing the nation with a crucial economic reprieve.
In addition to sovereign debts, Iraq faced numerous claims from companies that had obtained court judgements in their respective countries for losses incurred during the Gulf War. For instance, Swiss company ABB, won a $600 million judgement for a power plant contract while French company Alstom, which won a $2.2 billion judgement for a power station project. (10) Lacking legal representation to contest these cases, Iraq often acquiesced. Shielding Iraqi funds from being used to settle these legal cases, the 2003 executive order served as a protective measure, enabling Iraq to prioritise its reconstruction efforts without undue financial encumbrance. 

Iraq’s governance challenges after the American-led invasion of 2003

The September 11, 2001 attacks transformed the American national security agenda, characterised by significant military and political endeavours on the global stage. A pivotal juncture in this trajectory was the U.S.-led invasion and subsequent occupation of Iraq, propelled by a complex interplay of intelligence assessments and policy imperatives. The Office of Special Plans (OSP), a taskforce within the Pentagon, was created to discreetly gather evidence to support a military campaign against Iraq, with the ultimate goal of deposing Saddam Hussein from power.(11) It was the intelligence amassed by this specialised unit that informed President George W. Bush’s assertions regarding Iraq’s possession of WMDs and alleged ties to al-Qaeda, thus framing the disarmament of the regime as a paramount objective of US foreign policy. The rationale for the invasion was articulated across several key domains: Saddam Hussein’s purported possession of WMDs, the perceived threat he posed to regional stability, alleged connections between Iraq and al-Qaeda, Hussein’s oppressive governance, Iraq’s lack of democratic institutions, and the potential transformative impact of a free and democratic Iraq on authoritarian regimes in the Middle East. This narrative was aligned with the broader objectives of the Global War on Terror that envisaged the establishment of a democratic Iraq as a cornerstone of regional and global stability. Though there were debates concerning the invasion's compliance with international law, Kofi Annan, the Secretary-General at the time, alluded to the non-conformity of the invasion in regard to the UN charter, stating, “from the charter point of view, [the invasion] was illegal”. (12)

On March 19, 2003, a U.S.-led coalition launched a bombing campaign against Iraq, followed by a ground invasion, marking the start of an occupation that lasted from May 2003 until December 2011. During this period, EO 13303, enacted on May 22, 2003, played an important role in delineating the legal and operational framework of the US presence in Iraq. Among its directives, this order conferred extensive legal safeguards upon the Development Fund for Iraq and other Iraqi assets, thereby accentuating the strategic and economic dimensions of the occupation. The decisions and undertakings of this era were profoundly influenced by the intelligence assessments and strategic goals set by U.S. leadership, laying the groundwork for a protracted and contentious chapter in contemporary history.

The governance of Iraq underwent significant changes in this era. The US military assumed control of Iraq’s government until May 2003, when the CPA, led by Paul Bremer, took over civil administration. Bremer lacked substantial experience with Iraq, so he appointed a cadre of American and Iraqi officials with ties to the United States to aid in governance. As the administration undertook comprehensive management of Iraq, it encountered resistance from some Iraqis, who questioned the legitimacy of the CPA’s actions. Some of Bremer’s actions were beneficial for Iraq, such as debt relief.omeNevertheless, Bremer issued directives aimed at dismantling Iraq’s military and civilian institutions with the intention of rebuilding them leading to both internal and external pressures. This inspired the establishment of the Iraqi Governing Council (IGC), comprising representatives from diverse ethnic and sectarian backgrounds, though Bremer retained veto power. The IGC operated until the adoption of the Transitional Administrative Law and the transfer of power for the election of a government under Prime Minister Iyad Allawi, endowed with executive and legislative authority, thereby commencing the process of drafting a new constitution and organising elections. 

Internal and external developments since 2003

The U.S.-led invasion of Iraq in 2003 also reshaped the country’s sectarian dynamics, fundamentally altering the power balance between Sunni and Shiite communities. This seismic shift was not merely a consequence of military intervention but a deliberate strategic realignment that dismantled Saddam Hussein’s regime, long viewed as a bulwark against Iranian influence. With the removal of Hussein, a Sunni dictator who had ruthlessly suppressed the Shiite majority, Iran gained a significant advantage in pursuing its regional ambitions. In the ensuing power vacuum, Shiite political factions swiftly rose to prominence, fundamentally reshaping Iraq’s political landscape. However, this newfound Shiite dominance upended longstanding power dynamics, exacerbating sectarian tensions and fracturing Iraqi society along religious lines.

During this period, there was a notable escalation in Iran’s influence within Iraq. Tehran extended comprehensive support – military, financial and political – to various Shiite militias and political groups thereby bolstering its strategic foothold in the region. These entities, backed by Iran, emerged as influential actors within Iraq’s security framework, often operating independently and occasionally engaging in confrontations with Iraqi government forces and Sunni populations. Notably, Iranian influence permeated Iraq’s political sphere, evident in the close affiliations many Shiite politicians maintain with Tehran. This dynamic relationship, while contributing to stability under Shiite leadership, also introduced complexities. While reinforcing governance led by Shias factions, it simultaneously engendered a degree of reliance on Iran, thereby diminishing Iraq’s political sovereignty. This intricate interaction between Sunni and Shiite persists, characterised by a Shiite majority wielding substantial political clout while Sunni disenfranchisement remains a pressing concern.

U.S. objectives in Iraq have undergone a notable shift over time. Initially Washington aimed to foster a strategic alliance with the country. This progressively shifted towards preventing it from serving as a base for terrorist organisations like ISIS and al-Qaeda, while also using it to counter Iranian influence. The influence of terrorism has diminished in Iraq, yet the U.S. continues to employ sanctions and political pressure to exert influence as well as support the Iraqi national government, with a notable exception being the administration of Abdul-Mahdi’s which displayed closer ties to Iran. The executive order safeguarding Iraqi funds serves as one of many tools utilised by the U.S. to exert influence. Overall, Washington has scaled back its aspirations from constructing a democratic ally in Iraq to using it to thwart dominance by Iran in the region.

In managing affairs in Iraq, the U.S. initially took control of all sectors but gradually transferred responsibilities as Iraqi governance capabilities developed. The United States Agency for International Development (USAID) was crucial in reconstruction, training, and capacity building, often working discreetly due to security concerns. Despite the dominant military presence, substantial non-military efforts were significant, including economic, cultural, and technological exchanges.

In 2005, the Iraqi interim government formally assumed control from the U.S.-led authorities, with President Bush declaring it a transfer of "complete sovereignty." However, this claim was undercut by the continued presence of a significant U.S. military force (138,000 troops) and restrictions on Iraq's ability to pass laws and enter into long-term international agreements. A national election held in January 2005 marked a significant step towards self-governance by establishing a democratically elected government. Despite this progress,  Iraq's sovereignty remained contested. Internally, the presence of powerful militias aligned with Iran, operating largely outside government control, undermined the government's authority. (13)

Externally, neighbouring countries like Turkey (with military bases) and Iran (with missile strikes) further eroded Iraq's control over its own territory. These internal and external challenges illustrate the complex and multifaceted obstacles Iraq faced in achieving true sovereignty. Though the election marked a milestone in Iraq's sovereignty, challenges persisted. The power vacuum created by the U.S.-led invasion provided fertile ground for the emergence of terrorist groups, further complicating Iraq's path towards stability. The roots of terrorism in Iraq can be traced back to a group called Ansar al-Islam in 2001, a Kurdish Islamist group that sought an Islamic state in the Kurdistan region of Iraq, governed by strict Sharia law. However, the political instability caused by Saddam Hussein’s deposition turned Iraq into a battleground between American troops and jihadists. This global jihadist movement was led by a key figure, Abu Musab al-Zarqawi, the leader of Al-Qaeda in Iraq (AQI). From 2003 to 2006, AQI waged an insurgency against US forces and their allies, employing brutal tactics like bombings, kidnappings, and beheadings. (14)

Returning to the idea of sectarian issues, Zarqawi aimed to incite sectarian violence between Sunnis and Shiites to further destabilise Iraq. His extreme methods, including targeting civilians and executing hostages, made him a top target for U.S. forces. In 2006, he was killed in a U.S. airstrike. While his death was a blow to the insurgency, AQI's legacy continued. The group eventually evolved into the Islamic State of Iraq and the Levant (ISIL), which declared a caliphate under Abu Bakr al-Baghdadi in 2014. The US withdrawal from Iraq in 2011 created another security and political vacuum. This instability, coupled with the ongoing Syrian civil war on Iraq's border, proved to be a conducive environment for the resurgence of terrorism. ISIS capitalised on this opportunity, returning with renewed fervour and leading to the international coalition's return to Iraq.

Even as Iraq strives for normalcy, the legacy of conflict casts a long shadow. The U.S. government attempts to mitigate some consequences of its past actions while balancing legitimate claims against Iraq with the country's urgent need for reconstruction. The estimated cost of rebuilding, exceeding $500 billion, encompasses damage from the U.S. invasion, subsequent terrorism, and the fight against ISIS. The devastation is evident in cities like Mosul, where many remain internally displaced. Additionally, the international community, including the U.S., grapples with the complexities of involvement in Iraq's reconstruction, extending beyond its borders.

This international cooperation extends beyond the U.S. The UN's sanctions on Iraq, some of the harshest ever imposed, resulted in immense suffering from 1988 to 2003, with lingering effects even after their official end. The Oil-for-Food Programme, intended to alleviate humanitarian hardship, was unfortunately riddled with corruption. These issues, along with calls for the termination of the UNAMI mission by figures like current Iraqi Prime Minister Mohammed Shia’ Al Sudani, highlight the complexities of international involvement in Iraq's reconstruction.

Iraq’s oil dependence 

Furthermore, diversifying the oil-reliant economy is crucial, but current oil revenues are insufficient and oil remains a volatile commodity, prone to dramatic price swings, as seen during the 2020 crash.  With approximately 90% of government income derived from oil and a population heavily reliant on public sector paychecks, the government struggles to meet basic needs. This economic vulnerability complicates the reconstruction process, requiring a delicate balancing act from the international community, particularly the United States.
Fulfilling all claims would cripple the Iraqi economy. In that sense, EO 13303 aims to protect Iraq from frivolous lawsuits while recognizing legitimate claims. However, effective protection hinges on Iraqi cooperation, a point the U.S. leverages considering Baghdad's limited resources and immense reconstruction needs. The threat of lifting protections, exposing Iraq to lawsuits, serves as a significant motivator for Iraq to comply with U.S. expectations. In essence, the U.S. order offers necessary protection for Iraq, but at a cost to Iraqi sovereignty and economic well-being. The U.S. seeks a delicate balance, encouraging Iraq's reconstruction and cooperation while mitigating unfounded claims against it.

Iraq’s Current Challenges

The impact of the withdrawal of American troops on national security

          Iraq aimed for full sovereignty by ending the American military presence under Prime Minister Nouri al-Maliki, which was achieved in December 2011. (15) The U.S. re-engaged in 2014 to help combat the Islamic State threat but under a different engagement framework. Today, Iraq is enjoying an unprecedented period of stability and security compared to the last few decades, allowing priorities to shift towards non-military relations and cooperation. The U.S. continues to support Iraq through various programs, emphasising reconstruction, economic development, and cultural exchanges. This comprehensive relationship reflects Iraq’s normalisation as a sovereign nation engaging with the international community.

As previously mentioned, since 2003, Iraq has been a focal point for regional powers exerting their influence. Notably, Iran’s influence in Iraqi politics peaked after the U.S. announced its troop withdrawal in 2011. The rise of ISIS in 2014 provided Iran an opportunity to reinforce its presence, with Tehran-backed militias playing a crucial role in combating the radical group.

Terrorism has posed a significant challenge for Iraq, overshadowing other issues and leading to sectarian violence. This turmoil has transformed the country into a battleground for extremist Islamic groups and armed factions opposing the American presence and the democratic process. (16)

Following the American withdrawal from Iraq in 2011 and the subsequent decline in Iraqi security forces’ capabilities, ISIS capitalised on this period to rebuild. The politicisation of military leadership, where competent leaders were replaced with loyalists, further eroded combat effectiveness and morale. This environment allowed extremist groups to thrive, leading to a security collapse after ISIS’s attack on Mosul in 2014, enabling the group to seize large parts of Iraq. (17)

            The U.S. and its coalition partners played a crucial role in combating ISIS. (18) By 2017, Iraqi forces, with international coalition support, managed to defeat ISIS militarily. (19) However, with the diminished threat of extremism, some political factions in Iraq began calling for the expulsion of foreign troops, particularly American forces.

The potential new withdrawal of U.S. forces from Iraq is currently under discussion. Officials from the al Sudani government in Baghdad have confirmed that negotiations with the United States began in February 2024. As part of these talks, the U.S. has requested assurances to prevent the resurgence of ISIS. Despite its military defeat and the dismantling of its urban network, the Islamic State still operates in rural desert areas, which serve as its primary support base. Without ongoing deterrence, these forces could exploit deteriorating security and governance in areas previously under their control.

Furthermore, Sunni political entities involved in counter-terrorism faced allegations of “Sunni victimhood”. Extremist groups exploited the declining support for these forces and governmental malpractices in Baghdad, including arbitrary arrests and human rights violations, to recruit youth. (20) The Awakening Council forces, previously allied with the government and American forces against ISIS, faced similar persecution and unfulfilled promises of integration into official security forces. The eventual American withdrawal could enhance the proliferation of armed groups and increase violations against the Sunni community. The Islamic State, in particular, stands to benefit from such a situation. The ideological legacy of ISIS has not dissipated. Its cells continue to operate in a decentralised manner in regions like Salahuddin, Anbar, Diyala, the Baghdad Belt and the Jazira area. Despite the failed Ghwayran prison attack (21), in Syria on January, 20, 2022, ISIS needs its fighters to rebuild its efforts, prioritising reunions with their families in Al-Hol and Al-Roj camps near the Syrian and Iraqi border, and regrouping to the Anbar desert. The discussions surrounding the withdrawal of U.S. forces from Iraq underscore the complexities of maintaining stability in a region fraught with extremist threats. Ensuring Iraq's security and addressing the remnants of ISIS require careful consideration and ongoing international cooperation.

Iraq’s challenges amidst regional power dynamics

             The geopolitical dynamics in the region began to shift in 2018 with the Trump administration’s assertive policy toward Iran. The assassination of Iranian General Qasem Soleimani in 2020 intensified concerns about Iraq becoming a battleground for U.S.-Iranian proxy conflicts. (22) Under President Biden, these tensions have continued, with the U.S., Gulf states and Turkey emerging as primary challengers to Iran’s influence. Rather than a full withdrawal, the U.S. has been repositioning its troops. Moreover, the increasing involvement of Ankara and Riyadh, and the United Arab Emirates further complicates Iran’s position in the region.

Despite the complexity of the Iraqi-Iranian relationship, the fall of Saddam Hussein enabled them to grow closer. Iranian influence surged as Tehran sought to safeguard its strategic interests against the U.S. military presence. The Islamic Revolutionary Guard Corps (IRGC) supported various armed groups in Iraq, expanding its network of proxies to target U.S. forces. Iranian political elites also cultivated alliances within Iraq’s political parties. The lifting of global sanctions on Iraq presented economic opportunities for Iran to export goods to the Iraqi market.

Another indicator of Iraq and Iran’s interconnectedness is the return of Muqtada al-Sadr, a prominent political and religious figure in Iraq, into the Iraqi political arena (23). After his political movement won the 2021 elections, al-Sadr called for his deputies to resign and announced his retirement from politics in 2022 due to his inability to form a government excluding rival Shia factions. This decision led to violence in Baghdad, leading to numerous casualties, with around 400 dead and injured (24). Gradually re-emerging on the political scene, al-Sadr met with Ayatollah Ali Sistani, the leader of Iraqi Shias, on March 18, 2024, signalling his intent to return to parliamentary politics.

His potential comeback is pivotal, posing a threat to rival Shia parties and Iran-aligned militias, and potentially destabilising Iraq’s fragile stability. His return could lead to a new political alliance, further isolating certain factions and reshaping Iraq’s political landscape. Al-Sadr’s influence extends beyond Iraq, affecting U.S. and Iranian interests in the region. His actions could alter the balance of power, challenging Iran’s sway over Iraqi politics and complicating U.S. strategic objectives in the country. His return to the forefront of Iraqi politics underscores the intricate interplay between domestic power struggles and broader regional dynamics involving Iran and the U.S. (25)

Despite Iran’s significant influence, especially in the security sector where some armed groups have become institutionalised, Iraq’s governments have become more assertive(26). Baghdad has evolved an economic gateway for Iran and even mediated between Iran and the Gulf states, thereby enhancing Iraq’s leverage in regional affairs. For instance, on 6th January, 2016, Iraq offered to mediate between Riyadh and Tehran after tensions exploded after the execution of Sheikh Nimr al-Nimr, an emblematic shiite opponent of the al-Saud royal family, and the attack on Saudi’s embassy in Iran. (27)

As Iraq navigates these complex regional dynamics, its internal economic policies and foreign investments reveal a different set of challenges and opportunities. U.S. firms operate under strict regulations, including stringent anti-corruption laws that prevent them from engaging in bribery. In contrast, Chinese companies do not face the same level of regulatory scrutiny regarding corruption. This makes them more attractive to certain entities in Iraq that prefer less oversight and more flexibility. (28)

The rise of Chinese investments and the increasing risk of economic dependence

         Iraq has struggled with poor management of contracts, leading many Western companies, particularly in the oil sector, to leave the country. These companies anticipated significant returns from Iraq’s oil reserves but were disappointed by mismanagement and unmet expectations. Consequently, they exited the market, leaving space for other foreign investors. Chinese companies have capitalised on this opportunity, stepping in where Western firms have withdrawn. They bring political influence and a development model similar to what they have deployed in Africa, which often includes substantial investment in infrastructure and development projects.

However, as is the case with African states, these investments foster dependence on China, potentially culminating in a “debt trap”. (29) For Beijing, the potential benefits in Iraq include long-term access to natural resources, particularly oil, and increased political influence in the region. By filling the gap left by Western companies, Chinese firms secure lucrative contracts and establish a strong presence in Iraq’s development projects thereby boosting China’s economic interests and enhancing its geopolitical standing in the Middle East.  While beneficial for China, this dynamic poses risks for Iraq. Reliance on Chinese investments and its associated political influence can lead to a dependency that might limit Iraq’s economic sovereignty in the long run.

China has shown strong commitment to fostering “friendly” ties with Iraq (30), playing a major role in its reconstruction through the Belt and Road Initiative (BRI). In 2023,  trade between China and Iraq soared to around $50 billion, with Beijing emerging as the largest importer of Iraqi oil. Chinese companies have cemented their presence by signing a 20-year contract in 2019 to supply 100,000 barrels per day of crude oil, with the proceeds earmarked for development projects in Iraq(31). Chinese firms have not only contributed to the energy sector but also made significant investments in infrastructure. They have built schools, developed the Nasiriyah city airport, constructed power plants, and completed various other projects. A notable recent development is the start of work on 30,000 housing units near Baghdad in December 2023, part of a $2 billion project involving Chinese firms to build five new cities.

However, the landscape for Chinese investments in Iraq is not without challenges. The ongoing U.S. military presence and frequent attacks on U.S. bases complicate the situation. Washington has responded to these attacks with forceful reprisals, affecting Iraq’s sovereignty and stability. Despite these hurdles, China’s strategy remains focused on economic interests, carefully avoiding political and military entanglements. This allows the U.S. to manage regional stability while China concentrates on its economic agenda. (32)

The future of Iraqi sovereignty 

On May 22, 2024, the Biden administration renewed the national emergency order concerning Iraq, highlighting Washington’s enduring concern about Iraq’s fragility even over two decades after the initial invasion. This renewal underscores the persistent view that Iraq remains unstable and in need of continued support. In a recent meeting on April 15, 2024, President Biden and Prime Minister Al-Sudani discussed the future of U.S.-Iraq relations. President Biden reaffirmed the United States' unwavering commitment to Iraq’s security while emphasising the need to evolve the bilateral relationship beyond its traditional military and security focus. The new approach builds off the Strategic Framework Agreement established in 2008 to foster a comprehensive partnership encompassing development, education, environmental sustainability, and more. This strategic pivot reflects the changing dynamics and needs of both nations as they move forward, though the partnership has yet to go beyond issues relating to security matters. (33)

In terms of what continued U.S. presence means for Iraqi sovereignty, the need for the national emergency order should eventually come to an end. Iraq should prioritise settling all outstanding cases and establishing a self-sufficient system that does not rely on external protections. Indeed, the current dependence on this order for financial security is unsustainable in the long term. Iraq's failure to address these issues indicates a lack of prioritisation and a misunderstanding of the temporary nature of this protection. Continuing to rely on the order creates an imbalanced situation where Iraq's financial stability hinges on external factors, primarily U.S. policy. (34)

However, the reality is that the U.S. is likely to want to continue this order as a strategic tool. It has been used in the past to exert influence, and the U.S. will likely want to maintain this leverage in its relationship with Iraq. Therefore, while the ideal scenario would be for Iraq to dissociate from this order and address the underlying issues independently, the practicalities of geopolitics may necessitate its continuation for the foreseeable future. 

To fully benefit from the agreement, Iraq must exert substantial effort to activate all its components. This includes robust engagement with U.S. companies and ensuring the implementation of various initiatives. 

However, the question remains whether Iraq will be able to undertake the substantial reforms needed to the current status quo. These reforms require dismantling entrenched systems within the state that currently benefit from state revenues through patronage and bribery. Such changes are likely to face significant resistance from those who profit from the existing system.

While the extension of the mandate underscores Washington's concern about Iraq's stability and the need for continued support, there is scepticism about the feasibility of implementing the necessary reforms. The fragility of Iraq's political and economic systems poses a significant barrier to changes that would disrupt established power structures. This extension serves as a precautionary measure, ensuring that the U.S. continues to support Iraq through this period of instability. However, the success of these efforts heavily depends on Iraq's willingness and ability to undertake deep and often challenging reforms.

Multiple challenges impede Iraq's path to full sovereignty. Security concerns remain paramount, with ongoing battles against terrorism and militia violence plaguing the nation. Economically, Iraq urgently needs to strengthen its financial system and develop its infrastructure to achieve stability. Balancing its relationships with regional powers, particularly Iran and the United States, presents a complex diplomatic challenge. Furthermore, Iraq finds itself caught in the middle of regional power struggles it did not initiate. These external actors often exert influence through proxies, creating delicate situations that threaten Iraqi sovereignty.

Adding to these obstacles is the looming expiration of EO 13303, which currently shields Iraq from lawsuits by foreign corporations over pre-war debts.  In the event this order is not extended, Iraq would face numerous obstacles concerning its national debts and its responsibilities to foreign corporations. Without the protection of EO 13303, Iraq would be forced to undertake significant institutional reforms, granting specific government entities the authority to handle debt claim cases. Given the current state of Iraqi institutions, it's likely that international organisations would need to be involved, as Iraq lacks the capacity to negotiate these solutions independently. One strategy might involve negotiating settlements where Iraq offers creditors a portion of the claimed amount to conclude legal proceedings and move forward.

The precise effects on Iraq's economy, financial situation, and general stability are impossible to predict with certainty. However, there is little doubt that such a disruption would send shockwaves that would take time to resolve, forcing Iraq to grapple with the full scope of its financial obligations. The resulting strain on Iraq's financial and economic systems would likely exacerbate existing problems and potentially further destabilise the nation, creating a power vacuum that various actors could exploit. (35)

The CFRI does not take collective positions. Its publications only represent the views of their individual authors.

To cite this article : Lyna Ouandjeli, Taheera Sarker and Omar Bouafiaa,"Navigating Iraqi Sovereignty: from War to Governance", Centre Français de recherche sur l'Irak (CFRI), 12/06/2024, [https://cfri-irak.com/en/article/navigating-iraqi-sovereignty-from-war-to-governance-2024-06-12]