Iraq’s Battle to Regulate Its Militias — and What It Means for Investments and the Iraqi Dinar
Iraq is trying to bring powerful militias—most of them grouped under the Popular Mobilization Forces (PMF)—firmly under state control. This isn’t just an internal turf fight; it’s a make-or-break test for security, foreign investment, and, by extension, any credible path to a stronger Iraqi dinar. As a recent analysis puts it, Baghdad is pushing to rein in PMF factions amid fresh legislation and recurring flashpoints, because without real regulation, violent incidents will keep recurring.
The PMF emerged in 2014 to fight ISIS and was later granted official status by law, creating a commission within the state while leaving space for factional autonomy and external influence. That hybrid status—part state, part party militia—has been the core problem ever since. It gives some brigades budgets and legal cover, even as they maintain their own chains of command and economic interests.
This year, lawmakers and the government have debated new rules that would formalize PMF members’ employment and place the force under the prime minister’s authority as commander-in-chief. Supporters say this is the path to discipline and accountability; critics warn it risks locking in militia power if oversight is weak. The headline is the same either way: regulation is coming, but the details will determine whether the state gains control—or merely rubber-stamps it.
Events on the ground show why this is urgent. After a July clash in Baghdad that left three dead, the prime minister ordered disciplinary removals and legal referrals for PMF commanders involved—an unusually tough move that underscored how some units still act beyond formal orders. These steps signal intent, but they also expose the limits of Baghdad’s leverage when factions can mobilize men, money, and media at short notice.
The regional backdrop adds more friction. Iran-aligned Iraqi factions have toggled between restraint and escalation in recent years, sometimes staying quiet to preserve political gains, other times launching drone or rocket attacks that rattle markets and partners. That variability—neither full proxy control nor full independence—creates a constant risk premium for anyone doing business in Iraq.
Why regulation matters for investors?
Foreign investors look first for safety and predictability. The U.S. State Department’s 2024 Investment Climate Statement bluntly notes an “uneven security environment” and governance challenges—short-hand for the same militia/state overlap investors see in headlines. When authorities demonstrate they can prevent intimidation, protect facilities, and punish offenders, the risk premium narrows and capital becomes more patient.
You can see the difference in energy projects. When Baghdad aligns terms and improves operating security, big deals move: TotalEnergies’ multi-billion-dollar package has advanced from paper to construction phases this year—a tangible vote of confidence that depends on stable sites, safe logistics, and enforceable contracts. More projects like that require—and reinforce—security sector discipline.
Why does security matter for the increase in the value of the dinar?
Iraq runs a managed exchange rate anchored to the U.S. dollar. In 2023, authorities adjusted the official rate (stronger dinar) and have since focused on closing the gap with the parallel market, tightening compliance, and stabilizing inflation. The IMF’s recent reviews underline a simple point: currency stability and any talk of appreciation rest on credible policy, clean finance, and steady capital inflows—not slogans. That, in turn, depends on a safer business climate.
Security feeds the FX story in three ways. First, fewer disruptions mean more oil and non-oil investment, which lifts growth and reserves. Second, lower risk brings cheaper financing and more FDI—money that supports the balance of payments. Third, a state that can police armed actors is better able to enforce anti-money-laundering and sanctions rules that affect dollar flows and the exchange market. Academic and policy work on Iraq’s exchange dynamics has repeatedly flagged how governance and parallel-market pressures intersect—again pointing back to the rule of law and security sector control.
The bottom line.
Regulating the militias is not a side issue—it’s the keystone. Suppose Baghdad can translate draft laws and high-profile disciplinary moves into sustained, even-handed control of armed groups. In that case, Iraq will look safer to investors, megaprojects will stack up, and the macro underpinnings for any serious dinar revaluation will strengthen. If not, the country will keep paying a “militia premium” in higher costs, delayed projects, and a currency constrained by the constant need to manage risk rather than attract capital.
