Iraq's oil fortune: The two-decade grip of a US 'fortress'

Shafaq News

a day ago

Shafaq News
Before dawn in Basra, giant oil tankers edge into the jetties, loading arms glinting under floodlights as millions of barrels of crude stream aboard for export. Yet most of the proceeds from this trade never pass through Baghdad's vaults. Instead, they cross the Atlantic to a heavily fortified building in Manhattan — the US Federal Reserve Bank of New York — where they remain under strict American oversight.
What began in 2003 as a 'temporary safeguard' after the invasion and the fall of Saddam Hussein has endured for 22 years, outliving its original UN mandate and embedding itself in Iraq's financial system — and in the debate over whether such oversight protects or undermines the country's economic sovereignty.
From Mandate to Custody
In May 2003, UN Security Council Resolution 1483 required Iraq to deposit all oil and gas revenues into a Federal Reserve account under UN monitoring, with 5% deducted for reparations to Kuwait. That same month, then-US President George W. Bush issued Executive Order 13303, granting the account full legal immunity from seizure.
For nearly two decades, Iraq sent steady payments to Kuwait — $52.4B in total — until the last $44M cleared in late 2021, closing the file. Iraqi lawmakers hailed it as 'a new beginning,' yet the financial mechanism remained.
UN Security Council Resolution 1956, adopted on December 15, 2010, ended the UN-supervised arrangements for the Development Fund for Iraq (DFI) as of June 30, 2011. Yet Washington has renewed the executive order every year since — most recently in May 2025.
In US policy circles, the arrangement has shifted from a post-war safeguard to a permanent instrument — one that, according to American officials, helps stabilize Iraq's fragile economy and monitor dollar flows.
Supporters point to improved investor confidence and reduced risk from oil market volatility, while critics see a foreign power keeping a hand on Iraq's wealth.
Billions in New York
Central Bank of Iraq (CBI) officials told Shafaq News, in condition of anonymity due to the sensitivity of the matter, that the US Federal Reserve currently holds between $80B and $85B of Iraq's reserves. These funds pay for imports, settle foreign obligations, stabilize the dinar, and help curb inflation — making uninterrupted access critical to Iraq's economy.
However, that dependence has given US regulators leverage; after, what it alleged, tracing dollar transfers to sanctioned states such as Iran and Syria, the US Treasury barred 35 of Iraq's 72 licensed banks from dollar transactions. Iraqi officials note that banks can be reinstated if they meet compliance standards, but until then, access to dollars remains restricted.
With fewer dollars in circulation, the parallel exchange rate climbed from about 1,470 dinars per dollar in 2022 to peaks of 1,600 in 2024. Higher import costs rippled through markets, straining traders, raising consumer prices, and fueling public frustration.
Washington has also considered limits on foreign electronic payments, potentially affecting the use of international cards — a reminder that decisions made in New York can directly influence transactions in Baghdad's shops and markets.
Old Debt, New Risks
To some, this Fed account is a vital shield, including Washington-based economist and policy adviser Dr. Frank Masmar, who described it to Shafaq News as 'a safe haven for revenues in volatile oil markets' that also facilitates debt servicing and trade finance. He warned, however, that 'the United States can, if it chooses, use these funds as political leverage.'
Others in Baghdad, such as Prime Minister's economic adviser Mudhir Muhammad Salih, call it a 'legal safety net' that has allowed Iraq to diversify reserves into other protected central banks. He stressed that while the US does not directly control oil inflows, the dominance of the dollar means transactions are inevitably subject to American oversight.
Meanwhile, Economist Nabil al-Tamimi warned that Saddam-era claims could still be used to target Iraqi assets if they lose the Fed's legal protection, noting that gaps left since 2003 could be exploited by foreign creditors. Former senior banker Mahmoud Dagher agrees, arguing that with outstanding cases against the Ministry of Finance, moving the reserves would be 'a strategic mistake.' Both see the same hazard: without immunity, Iraq's wealth could become entangled in court battles abroad.
A Delicate Balance
Oil revenues fund more than 90% of Iraq's budget; any delay in accessing them would disrupt salaries, stall public services, and unsettle markets. Altering the arrangement could also raise borrowing costs, hurt credit ratings, and weaken the dinar — risks Baghdad cannot afford to ignore.
Iraq's choices are few: keep the system, renegotiate it, or cut the tie entirely. Each path carries consequences beyond accounting and deep into the question of sovereignty.
As some analysts put it, relying on the Federal Reserve is like walking a tightrope — it offers security, but it can become a pressure point the moment "Washington's political calculus shifts."
Two decades after the first oil dollars landed in New York, Iraq's economic lifeline shall continue running through a foreign vault for the foreseeable future — a reminder that in global finance, the lines between protection and control can be dangerously thin.