How the US Still Controls Iraq’s Oil Revenues After Troop Withdrawal in 2026
Even after the withdrawal of American troops from Iraq, Washington will continue to control the country through the established oil revenue system. Read more about the Federal Reserve Bank management of funds, reasons for establishment, and consequences!
Raja Awais Ali
9/30/20264 min read
How the United States Still Controls Iraq’s Oil Revenues After Troop Withdrawal in 2026
The departure of the last American troops from Iraq on September 30, 2026, will mark the end of more than two decades of the US military presence in the country. Although the military withdrawal has been welcomed by Iran and its allies, the influence of Washington over Iraq is unlikely to disappear in the near future. Despite the absence of American soldiers on Iraqi soil, Washington continues to exercise control over Baghdad through financial levers, as the money from Iraq’s oil sales remain in a financial system closely tied to the United States.
The history of this system began in 2003 when the Coalition Provisional Authority was established in Iraq after the invasion. The CPA’s mission was to ensure the stability of post-Saddam Hussein Iraq and oversee the transfer of oil revenues to special accounts known as the Development Fund for Iraq. In essence, it was an account held at the Federal Reserve Bank in New York controlled by the CPA. According to reports, the fund was created to ensure the allocation of oil revenues for rebuilding the country and its treasury and to protect these assets from legal disputes or seizures in connection with the Hussein regime. Eventually, the Development Fund was transferred to the jurisdiction of the Central Bank of Iraq. However, the link between Iraqi oil revenues and the Federal Reserve Bank of New York remained intact.
It means that Washington continues to have significant leverage over Baghdad, as oil revenues are the lifeblood of the Iraq economy. In other words, any disruptions to the flow of income from oil sales to the Development Fund may cause severe financial challenges for Iraq. It was the issue that caused the crisis of the Iraqi debt in 2020 when the government demanded the withdrawal of American troops from the country. According to reports, the US administration warned Baghdad that it could lose access to the funds held at the New York Federal Reserve Bank.
Proponents of the system emphasize that it has allowed Iraq to maintain economic stability since 2003. The system ensures confidence in the management of oil revenues, facilitates access to foreign exchange, and protects state funds from spurious legal claims, thus promoting capital control and exchange rate stability. Moreover, the system allows the government to build confidence with international partners and maintain economic sovereignty by gradually transitioning some responsibilities to Iraqi financial institutions.
At the same time, the system allows the United States to monitor the flow of dollars within Iraq. In particular, there is a concern that the currency transfers to state-owned enterprises may be diverted to unauthorized recipients, including Iran, which is under strict sanctions. In fact, there is evidence that the United States has already used such a tool to impose economic restrictions on Iraq. Last year, the US Treasury imposed sanctions on several Iraqi banks and individuals, accusing them of facilitating money laundering for Iran.
According to Iraqi officials, the Special Commission is a useful mechanism to ensure that the government is not vulnerable to third parties’ pressures, such as those seeking to relax restrictions on accessing the US dollar. At the same time, the inability to convert Iraqi dinars into dollars has led to the emergence of a parallel market, in which the exchange rates are significantly different from the official ones. The existence of this market has prompted economists to conclude that there is a premium for unofficial transactions, which is a consequence of the inability to freely withdraw foreign currency.
In particular, a significant milestone in this development was the announcement at the beginning of this year about the closure of the Foreign Currency Window. The system allowed banks and authorized private agencies to buy and sell foreign currency in exchange for dinar. The decision to cancel it was motivated by the need to respond to increased pressure from the United States, which sought to restrict the flow of dollars to Iran via Iraq. Thus, the changes to the Foreign Currency Window marked one of the most significant financial overhauls in Iraq in recent years.
In addition, regional dynamics that have taken place since the reelection of Donald Trump in 2024 have also had an impact on the relationship between Washington and Baghdad. In particular, the regional balance of power has been shaken by an extended war between the US, Israel, and Iran that broke out on February 28, 2026. These events have had a significant impact on international relations, placing Iraq in an extremely difficult position between the US and Iran. While maintaining good relations with Washington, Iraq is also reluctant to worsen its already strained ties with Tehran. Thus, it has led to a precarious position for Iraq, which finds itself caught between two powerful countries.
Although American troops have left Iraq, it does not mean that the US will give up its influence over the country. In particular, the system established back in 2003 remains in place, allowing the United States to ensure a steady supply of revenue from oil to the Development Fund. Although it was announced that the system would be changed to give Iraq more economic sovereignty, its future remains to be seen. In addition to the current challenges, it will be necessary to address the issues of financial security and the transition to a new system. Such issues will shape the future of economic and political relations between Iraq and the US for years to come.
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