Iran retains both economic and security dominance over Iraq. The new Prime Minister of Iraq, Mustafa Al-Kadhimi, came to power on a wave of anti-Iranian sentiment. Chipping away at the institutions that secure Iran’s dominance over Iraq requires Washington’s backing.
In a nutshell
- Al-Kadhimi wants to reduce Iran's dominance over Iraq
- Corruption and energy dependence are holding Iraq back
- The country needs political support to gain more independence
Iraqis are living in nightmarish conditions, the result of ethnoreligious schisms and deeply rooted official corruption, but also of the omnipresence of one foreign power: Iran.
Tehran’s dominance hinges on tolerating, if not encouraging corruption, intercommunal strife and raw violence against political opponents, leading to security chaos. The Iraqi state apparatus does not control most of the country’s borders or even its economy. Iraq is Iran’s economic cash cow, making any attempt to reduce dependence a gargantuan task.
Prime Minister Mustafa Al-Kadhimi was swept into office in May 2020 on a wave of mass anti-corruption and anti-Iranian demonstrations. Unlike the 2006-2017 Sunni-Shia civil war, the recent anti-government civil protest is coming from the educated but unemployed youth of the Shia community. At the start, Mr. Al-Kadhimi made a few critical administrative and military appointments, which sent an anti-graft message and gave him some leverage against the pro-Iranian militias.
Tehran holds a sword of Damocles over the prime minister’s head.
Mr. Al-Kadhimi also promised to hold new elections under legislation approved in November 2020 that makes it more difficult to buy votes and intimidate voters, and much easier for independents to run. Originally slated to take place in June this year, the elections have now been pushed back until October.
The new prime minister has no party of his own, and his government’s support in parliament is fragile. He is trying to shore up public support by showing that he is strengthening the country’s economy and security, and that he is fortifying Iraq’s sovereignty against Iranian influence. If he does not find enough support in the new parliament, whenever it is elected, all his planned reforms will come to naught.
Iran has achieved its near-complete domination of Iraq’s security through the Popular Mobilization Units (PMU), some 40 militia organizations with at least 160,000 armed members. The PMU was established in 2014 in response to the threat posed by Islamic State (also known as ISIS or Daesh).
Facts & figures
The PMU vs. the protesters
The PMU killed, wounded or kidnapped thousands of the protesters who swept Mr. Al-Kadhimi to the premiership. He promised to punish those responsible. Yet while a few of the less prominent figures have been arrested or forced into retirement, the prime minister has been slow to neutralize the bigger fish, including PMU head Falih Al-Fayyadh, who was removed from his position as head and advisor of the National Security Council but who still leads the militias.
Baghdad has been paying the militias’ salaries and providing them with military equipment. Except for four that have pledged their allegiance to Iraqi Shia Grand Ayatollah Ali al-Sistani, all others are answerable only to Tehran. They often cause havoc, operating against Western embassies, U.S. military forces, Saudi interests, businesses they deem “immoral” and peaceful anti-Iranian demonstrators.
Mr. Al-Kadhimi’s strategy for dealing with the PMU is to wait them out while pleading with Tehran to rein them in. His methods were on clear display in December 2020 and January 2021, in the run-up to the anniversary of the assassination of Iranian General Qassem Soleimani by the United States, which occurred on January 3, 2020.
Facts & figures
In December 2020, the pro-Iranian militias sent an opening salvo, lobbing a barrage of 21 rockets at the Green Zone in Baghdad, causing substantial damage to the American Embassy compound and killing one Iraqi civilian. In the aftermath, Prime Minister Al-Kadhimi sent an envoy to Tehran to plead for peaceful demonstrations. Surprisingly, no further attacks were launched. Though thousands of people filled the streets, the anti-American protests remained peaceful.
That violence was avoided seemed like a political victory for Mr. Al-Kadhimi, both in terms of domestic policy and diplomacy, but it was really a powerful demonstration of Tehran’s control over Iraqi security. Iran’s grip on Iraq is tightened as the former holds a sword of Damocles over the prime minister’s head: if he does not behave, Iraq will return to chaos. By January 2021, shortly after the anniversary of Soleimani’s death, the pro-Iranian militias resumed their previous activities.
In a test of the administration of new U.S. President Joe Biden, on February 15, 2020, Erbil, the capital of the autonomous Kurdistan Region, was struck with more than a dozen rockets. They killed one contractor at the airport, wounded five more coalition personnel, including one U.S. soldier, and injured three local civilians. On February 20, three rockets hit the Balad Air Base north of Baghdad, injuring one Iraqi contractor. Two days later, four rockets again hit the Green Zone.
The militias control border crossings, using them to smuggle goods and extort traders.
The American response came on February 25 in the form of a bombing of small bases on the Iraqi-Syrian border. American and Iraqi intelligence services concluded that, though they were inside Syria, the bases were occupied by the Iraqi pro-Iranian militias responsible for the Erbil attack. the Iraqi Hezbollah Brigades reported one militiaman dead. By hitting the militias outside of Iraq, the U.S. enabled Prime Minister Al-Kadhimi to evade a confrontation with the militias, for now.
It is important to remember that the militias’ power goes well beyond strafing the Green Zone and the occasional attacks on coalition logistics sites and Iraqi military bases hosting U.S. troops. They have many representatives in parliament. Like Lebanon’s Hezbollah, they receive Iranian financial support (on top of the funding from the Iraqi budget) and own many economic assets. They control most border crossings with Iran in the east and with Syria in the west, using them to smuggle goods, extort traders, and facilitate Iranian military shipments to Syria.
Along with his promises to restrain the militias and keep Iran at bay, the prime minister also promised to jump-start the economy. Creating jobs for young people is his first priority. Iraq’s economic circumstances, however, make this a tall order.
The administration is corrupt. The 2020 Transparency International Corruption Perceptions Index ranked Iraq 160 out of 180 countries. For now, Prime Minister Al-Kadhimi is trying to starve the corrupt politicians and militia bosses of their illicit revenues. It is a slow and arduous process. Putting the most corrupt and senior politicians and militia bosses on trial is out of the question.
Facts & figures
Another impediment is the dangerously bloated public sector. Iraq’s total workforce in 2020 was 10.8 million people, 6.5 million of whom were public sector employees. (In the final years of dictator Saddam Hussein’s rule over Iraq, the public sector numbered less than a million.) At least 20 percent of all public employees are absentee salary collectors. This is how the corrupt politicians reward their supporters.
This crushing public workforce includes the super-expensive anti-government, pro-Iranian militias. Paying so many idle employees is an untenable burden even on the budget of a large oil producer. For years, even with high oil prices, the government was struggling to pay salaries, pensions and some subsidies. Days after the new government took office, Iraq’s finance minister flew to Saudi Arabia, cap in hand, asking for an immediate $3 billion loan just to pay state salaries. In January 2021, Iraq requested an emergency loan of $6 billion from the International Monetary Fund.
The young generation is desperate for jobs, but because the private sector is moribund, at least 70 percent of new jobs must be provided by the already overburdened public sector. The Covid-19 crisis and collapse in oil prices have only added to those problems. Iraq’s budget depends on oil revenues for more than 90 percent of its outlays. To keep from running a deficit, it needs Brent crude to cost at least $60 per barrel.
In December 2020, when the new budget was approved, the oil price was $50 per barrel. Not only did Iraq have to run a deficit, it also had to make significant cuts to public spending. The 2021 draft budget of $103 billion includes an estimated deficit of $43 billion, or 42 percent. Rising oil prices and the recent devaluation of the Iraqi dinar by some 20 percent will help, but the deficit will still be large.
For Tehran, ensuring Iraq remains dependent is a top priority.
As if that were not enough, the Iraqi economy also helps prop up Iran’s. In addition to red tape, massive official corruption and protection fees for militias, a central cause of Iraq’s private-sector paralysis is Iranian export dumping. Iraq’s markets are flooded with untaxed and low-tax, low-quality Iranian fruits, vegetables and medicines, as well as low-tech industrial products.
Iraq also depends on Iran for electricity and gas. Because of massive corruption and bad public policy (Iraqis treat electricity as an entitlement) and despite spending $62 billion since 2003 on electricity generation, it still cannot provide for its needs. By the end of 2020 imports accounted for about 8,000 MW of Iraq’s 19,000 MW daily electricity consumption – mostly from Iran.
Iraq is the second-largest oil producer in OPEC after Saudi Arabia and has proven natural gas reserves of some 112 trillion cubic feet – 12th most in the world. Yet it depends on Iran for about a third of its natural gas consumption. The Iraqi government frequently falls behind on its payments, at which point Iran cuts off the flow of energy until Baghdad coughs up the funds.
For Tehran, Iran’s grip on Iraq is a top priority. But Iraq’s gas reserves threaten this subservience. The resources awaiting extraction in Kurdistan are especially promising. In late 2019 the Kurdistan Region Ministry of Natural Resources estimated the proven gas reserves there at 25 trillion cubic feet and unproven reserves at as much as 198 trillion cubic feet. It has oil reserves of 45 billion barrels.
American companies are ready to invest in Kurdish oil and gas, but even when the pandemic subsides and prices rise, investors will want stability. Relations between the autonomous Kurdistan Region and Baghdad are tense. Prime Minister Al-Kadhimi seems to be making an honest effort to settle the differences, but Tehran will try to sabotage any attempt to build a gas pipeline from Kurdistan to Baghdad.
In October 2020, the government issued a white paper on economic reform. There were three main recommendations for overhauling the system. The first was to shrink the huge, unproductive public sector. Second was to end Iraq’s dependence on oil revenues by boosting the private sector. Third and most urgently, it recommended that authorities find a way to rev up gas and electricity production.
To help loosen the Iranian stranglehold, Prime Minister Al-Kadhimi has tried to jump-start economic relations with the Gulf states. His government signed an agreement in 2019 to build high-voltage lines from Kuwait that would add 500 MW to the Iraqi electric grid. However, by January 2021 no progress on the project had been made.
The Al-Kadhimi government has also negotiated direct maritime shipping lines with Oman and the United Arab Emirates. In November 2020, Iraq and Saudi Arabia reopened the Arar border crossing after a 30-year closure dating back to the first Gulf War. The Saudis paid for the rebuilding of the infrastructure on both sides of the border. Saudi investments in Iraq in 2021 are expected to reach at least $2 billion.
However, pro-Iranian organizations have expressed their fierce opposition to the projects as “Saudi colonialism.” Though Prime Minister Al-Kadhimi has countered these protestations by stressing the importance of the investments to boost the economy and create jobs, Iran’s warning growl was heard loud and clear.
Purely militarily speaking, Prime Minister Al-Kadhimi’s chances of winning a confrontation against the militias are better than even. The state military is about the same size as the PMU, but it also has a small air force, a small tank corps and more artillery than the militias. The military’s leading division, the 10,000-strong Counter Terrorism Service, is a professional and reliable force that could lead such an assault. Most of the army commanders are loyal to the new prime minister and hostile to the PMU.
Still, such a confrontation could start an intra-Shia civil war, which is why the prime minister has decided to slowly erode the militias’ power by restricting their financial resources and exploiting their internal divisions. In theory, he could order the Finance Ministry to stop paying the PMU’s salaries, or the Defense Ministry to stop providing them with logistical supplies. In practice, however, this is impossible, first because the PMU is part of the Iraqi state military under the current legislation. There is no chance that the parliament would overturn this law. Second, the PMU commanders would march on Baghdad, with full Iranian political and logistical support – potentially resulting in the confrontation mentioned above.
Instead, the prime minister has gradually been sending loyal army units to take over border crossing stations that, until recently, were mostly controlled by the PMU. These checkpoints served as a source of revenue for the militias who kept the customs payments to themselves and the politicians behind them. So far, the results are a major leap in the state’s revenue from border customs.
This strategy has the advantage of not only shifting funds from the militias and their political bosses to the Iraqi government, but also sealing off the country’s porous borders against Iranian military equipment and personnel flowing to Syria and Lebanon. It can also prevent the militias from storing Iranian missiles in the desert regions of western Iraq to be used later against Israel. However, it is unlikely that Iran would ever allow Prime Minister Al-Kadhimi’s plan to fully succeed.
On January 21, 2021, two Islamic State suicide bombings rocked Baghdad and reminded Iraqis that the terrorist organization was down, but not out. There are two reasons for its comeback. First, the regime-Sunni conflict is still simmering due to Baghdad’s neglect of reconstruction in Sunni areas. Second, the international coalition is too busy protecting itself against the pro-Iranian militias.
Economy and elections
Iraq’s economy is still choked by a combination of ineptitude, official corruption and red tape, as well as Iranian commercial dumping and energy domination. If Prime Minister Al-Kadhimi wins more support in the next parliament he will try to tackle some of these issues, but it will be an uphill struggle.
If he ends the feud with the Kurdistan Region, large quantities of natural gas may begin to flow south to Baghdad. The question is how much economic autonomy Tehran will allow Iraq to gain. For Iran, its neighbor is both a source of income and a crucial security asset. Part of the answer will be found in the U.S., the only country powerful enough to help loosen Iran's grip on Iraq. President Biden’s Middle East policy could be decisive.
Prime Minister Al-Kadhimi’s strategy is based on two assumptions: first, that time is on his side and second, that through gradual attrition, the militias and Tehran will relent. Both assumptions may be mistaken. If he cannot win support in the upcoming elections, Mr. Al-Kadhimi will have no chance of implementing his plan.
On February 16, 2020, the United Nations issued a warning that the impending elections must avoid “intimidation, attack, abduction and assassinations.” Those are currently daily afflictions in Iraq, and they ruined the elections of 2018, resulting in a record-low turnout and a problematic parliament.
However, if the prime minister wins enough support in parliament, he will have to act very quickly to rein in the militias and rescue from Iran’s grip on Iraq and its economy, while he still has the chance.