By Micah Jonah
January 24, 2026
Since the 2003 invasion of Iraq, the United States has maintained effective control over the country’s oil revenue dollars, giving Washington significant leverage over Baghdad’s economic and political affairs, with broader implications for regional dynamics involving Iran.
The control stems from Iraq’s Development Fund (DFI), established by the US-led Coalition Provisional Authority after the invasion. Held at the Federal Reserve Bank of New York, the fund was designed to manage Iraq’s oil revenue for reconstruction, safeguard it from claims related to Saddam Hussein’s regime, and ensure access to U.S. dollars. Subsequent U.S. administrations have renewed the arrangement, which now functions as an account of the Central Bank of Iraq at the New York Fed.
Oil accounts for roughly 90 percent of Iraq’s state revenue, giving Washington substantial influence over the country’s financial stability. Reports indicate that when Baghdad requested U.S. troop withdrawal in 2020, Washington threatened to cut Iraq’s access to these funds, prompting the government to back down.
Iraqi officials, speaking on condition of anonymity, said the arrangement has anchored financial stability, strengthened domestic institutions, and ensured smooth access to dollars for trade and imports. It also provides safeguards against external claims and economic shocks, while restricting access to dollars for actors allied with Iran, following U.S. sanctions against banks and individuals accused of laundering money.
However, the arrangement has also contributed to a parallel black-market dollar economy, creating a gap between official and informal exchange rates. Under President Donald Trump’s second term, U.S. pressure intensified, leading to the formal end of Iraq’s dollar auction system in early 2025, aimed at curbing illicit fund transfers to sanctioned entities.
The U.S. control of Iraq’s oil revenues underscores the enduring influence Washington wields over Baghdad’s economic landscape, even as Iraq seeks greater sovereignty over its resources.
