US Threatens Iraq's Oil Funds in PM Standoff

A high-stakes political standoff between Washington and Baghdad is escalating, threatening to destabilize the OPEC member nation over the selection of its next prime minister. The White House has warned Iraqi officials that it will restrict the country's access to its oil export revenues if Nouri Al-Maliki, a candidate viewed by the US as too close to Iran, is appointed to the top post.

According to people familiar with the private discussions, the warning was delivered again last week during a meeting in Turkey between Iraq’s central bank governor, Ali Al-Alaq, and senior American officials.

The pressure from Washington has become increasingly public. Around the time of the Turkey meeting, US President Donald Trump insisted on social media that Iraqi politicians could not choose Al-Maliki. US frustration has reportedly grown as Al-Maliki, who previously served as prime minister from 2006 to 2014, has refused to withdraw his candidacy.

America's Financial Leverage Over Baghdad

The US threat carries significant weight due to its control over Iraq's finances. After the 2003 invasion, the US established the Development Fund for Iraq at the Federal Reserve Bank of New York to manage proceeds from the country's oil sales.

While the original fund was closed in 2011, a similar arrangement persists. Iraq's oil export revenues are currently deposited into an account at the New York Fed under the name of Iraq's finance ministry. This system, the US says, shields Iraq's income from lawsuits related to the former Saddam Hussein regime.

This account is the lifeblood of the Iraqi state. The government relies on it for approximately $7 billion a month to cover expenditures, including public sector salaries and pensions. An additional $500 million in cash is flown from New York to Baghdad each month. With oil revenue accounting for about 90% of its budget, Iraq is one of the world's most oil-dependent economies, making any disruption to these funds a critical threat.

In his social media post, Trump stated that America would "no longer help Iraq" if it proceeded with Al-Maliki's nomination, criticizing the 75-year-old for his "insane policies and ideologies."

The Geopolitical Battle for Influence

The confrontation highlights the Trump administration's broader strategy to counter Iran's influence across the region. In response to what it calls American "bullying," Tehran has urged its political allies in Iraq to hold their ground.

Iran's Supreme Leader, Ali Khamenei, recently sent Esmail Qaani, commander of the Islamic Revolutionary Guard Corps, to Baghdad with a letter congratulating Iraqi leaders for nominating Al-Maliki. This move has reportedly angered US officials.

Iran, a majority-Shiite nation, shares a nearly 1,000-mile border with Iraq and views its neighbor as essential to its national security. Since the fall of Saddam Hussein, Tehran has built substantial influence in Iraq, primarily by supporting the country's newly empowered Shiite majority through political, ideological, and military channels.

Iraq's Unresolved Political Future

The political deadlock follows parliamentary elections held in November. Under Iraq's power-sharing agreement, the prime minister's office is reserved for a Shiite, while other key positions are allocated to Sunni and Kurdish leaders. It remains unclear how long it will take for a governing coalition to form.

Despite the US pressure, Al-Maliki's position has not changed. "He is still the candidate," his spokesman, Hisham Al-Rikabi, told Bloomberg on Tuesday.

Meanwhile, the outgoing prime minister, Mohammed Shia Al-Sudani, who took office in 2022, has maintained a delicate balance in relations between the US and Iran. He has cultivated good ties with Washington and recently encouraged further investment from American oil companies like Exxon Mobil Corp. and Chevron Corp. Reports suggest Al-Sudani believes he can secure a second term, banking on the possibility that Al-Maliki will either be forced to step aside or fail to gather enough political support.