Iraq Explainer: How the U.S. Controls Iraq's Oil Revenues

 

Since the 2003 U.S. invasion of Iraq, the United States has maintained an unusual degree of influence over Iraq’s oil revenue flows — a key source of income for the country’s government and economy. Through financial infrastructure and legal mechanisms established during the post-war period, Washington has been able to exercise de facto control over Iraq’s oil dollars, a system with lasting implications for Iraqi sovereignty, economic stability, and regional politics. (Investing.com)

1. The Origins: Post-Invasion Financial Architecture

After the 2003 ouster of Saddam Hussein, the U.S.-led Coalition Provisional Authority (CPA) set up a legal and institutional framework to manage Iraq’s government finances. Central to this was the creation of the Development Fund for Iraq (DFI) — an account at the Federal Reserve Bank of New York designed to receive and manage the bulk of Iraq’s oil revenue. (Investing.com)

The DFI was intended to:

• Collect most of Iraq’s oil proceeds and safeguard them throughout the transition;

• Fund reconstruction and public services in post-Saddam Iraq;

• Protect oil revenues from legal claims, including lawsuits related to Saddam’s regime. (Investing.com)

A U.S. executive order — first issued by President George W. Bush and renewed by subsequent administrations — provided legal immunity for these accounts from seizure and tied them to U.S. financial institutions as a safeguard. (Investing.com)

2. Structure and Ongoing Arrangement

Though the DFI was originally a CPA-managed fund, it later transitioned into an official account of the Central Bank of Iraq (CBI) at the Federal Reserve Bank of New York. This arrangement remains in place today, meaning Iraq’s oil revenue dollars still flow through the U.S. financial system. (Investing.com)

Iraq’s oil sector is the backbone of its economy — making up about 90% of government revenues — and nearly all export earnings are denominated in U.S. dollars. (Investing.com)

3. What Leverage Does It Give the U.S.?

Because Iraq depends heavily on oil for its budget and foreign exchange, the U.S. position as custodian of the central oil revenue account gives Washington practical leverage over Baghdad’s finances:

• Political Pressure: In 2020, when the Iraqi government sought the withdrawal of U.S. troops, Washington reportedly threatened to restrict Iraq’s access to its New York Federal Reserve funds — a move that pressured Baghdad into backing down. (Investing.com)

• Economic Influence: Control over oil-dollar flows affects Iraq’s access to international markets, financing, and daily import bills, giving the U.S. leverage far beyond traditional diplomacy. (Investing.com)

• Sanctions and Dollar Flow Controls: U.S. sanctions on Iraqi banks and individuals accused of facilitating funds to Iranian-linked entities underscore how U.S. financial controls can influence internal Iraqi political dynamics. (Investing.com)

4. Why Does Iraq Agree to This System?

Despite criticism from various Iraqi politicians and political factions, officials have said the arrangement:

• Helps anchor financial stability and bolster confidence from international markets;

• Protects state finances from external shock and legal claims;

• Supports currency stability and broader economic confidence. (Investing.com)

For Baghdad, the benefits of maintaining formalized dollar flows through a major international central bank have often outweighed the political costs of conceding influence to Washington. (Investing.com)

5. Economic Side Effects

The control and regulation of dollar flows — including systems like Iraq’s once-central foreign currency auction (dollar auction) mechanism — also had unintended consequences:

• A gap developed between official and black-market exchange rates, reflecting restricted formal access to dollars;

• Critics pointed to inefficiencies and corruption linked to controlled dollar supply, prompting reforms that ended the formal auction system in 2025 under U.S. pressure. (Investing.com)

6. The Current Status

As of early 2026:

• Iraq’s oil revenue remains housed in the Federal Reserve Bank of New York under its existing agreement with the CBI;

• This setup continues to give Washington significant financial leverage, even as Baghdad seeks to expand its economic sovereignty;

• Political tensions around broader Iraqi autonomy and regional influence — including Iranian ties — continue to underscore the geopolitical stakes tied to oil revenue control. (Investing.com)