Iraqi Prime Minister Mohammed Shia al-Sudani is set to meet US President Joe Biden in Washington on April 15, in a visit that has been planned for a long time. The two men are meeting less than two days after Iran launched a direct attack on Israel involving more than 300 drones and missiles, and unprecedently originating from its own soil. Some of these flew over Iraqi airspace on the evening of April 13 en route to Israel.
Following months of careful preparation by Baghdad and Washington, in an effort to shore up their relations in the aftermath of the Gaza war, the Iran attack will likely suck all the air out of the room on Monday.
For decades, unwritten rules of engagement between the two Middle East powers were designed to spare the region such a confrontation. Since the deadly US drone strike on Islamic Revolutionary Guard Corps Quds Force Commander Qassim Soleimani in Baghdad in early 2020, Iraq has emerged as an arena for Tehran to directly settle scores with Washington and its local allies.
The enormous challenge for Sudani and Biden will be finding a way to restrain Iranian-backed Iraqi militias should Israel decide to make good on its threat of an unprecedented retaliation of its own against Iran. If this were to include Tehran’s proxies in the region, then Israeli airstrikes on Iraq would no longer be a remote possibility.
Iran’s retaliation, in response to a suspected Israeli airstrike on its Damascus consulate earlier this month, complicates the prospects for bringing the devastating war in Gaza to an end — a conflict that saw Iraqi militias target US interests, not only at home but also in neighboring Syria and Jordan as part of a broader “Axis of Resistance” response to US support for Israel.
The episode has marked an ebb in Iraqi-US relations; and in managing the fallout, Sudani has sought to balance, on the one hand, maintaining the bilateral relationship and, on the other, preserving the political backing his cabinet needs from pro-Iran factions within the ruling Shi’a Coordination Framework (SCF) — a bloc he owes his premiership to.
Prior to the ramp up of region-wide hostilities, Washington and the new SCF-led government in Baghdad, formed a year after the October 2021 parliamentary elections, engaged pragmatically despite continued US concerns about Iranian influence over the bloc.
Recurring militia attacks, which even targeted the US embassy in Baghdad, saw Washington retaliate multiple times by striking militia sites and leaders throughout the country, even in the Iraqi capital itself. The US also imposed sanctions on individuals and entities, including banks that it associates with the militias and their political wings, and tightened measures limiting the flow of US dollars into Iraq’s financial system to deter suspected smuggling to Iran.
US troop withdrawal
Sudani attempted, to no avail, to restore the previous detente, but the salvos of attacks and retaliations cornered the Iraqi government; it could neither stop attacks on US interests, including those on diplomatic facilities, nor prevent foreign powers’ strikes on Iraqi soil, which domestic political actors publicly condemned as a violation of Iraq’s sovereignty.
In an April 11 article for Foreign Affairs, Sudani admits that, “My government is aware of its sensitive position and the delicate balance that it must maintain between the United States and groups that sometimes enter into direct conflict with American forces.”
The prime minister argues that with time, weapons outside the control of the state will eventually disappear, adding that, “The decision to make war and peace must be an exclusive matter for the state, and no other party can claim this right.”
In the run-up to the US visit, the militias agreed to suspend their attacks; but this pause remains untenable. The Pentagon said on April 13 that some of the drones and missiles fired on Israel originated from Iraq, but thus far there have been no reports of Iraqi militia attacks on US facilities in the country. Undoubtedly, however, Iran’s direct engagement with Israel will only embolden its proxies and increase their political clout locally in the long run.
A central demand by hardliners and the militias is for the prime minister to secure a hard date from Biden for the withdrawal of US troops from Iraq. Sudani is unlikely to deliver on such a withdrawal, but the optics of a continued “conversation” on a timeline for a future pullout would indeed help him politically.
With US presidential elections looming in November, and Washington’s attention fixed on restraining a counterattack by Israel, Biden’s main expectation from Sudani is that Iraq should not emerge as a headache for the administration, forcing, yet again, military action. Biden will not give Sudani a hard promise, as his Republican opponents would likely deem this a concession to Iran. But perhaps he might be able to promise a reduction in troop numbers after his re-election.
For its part, Baghdad needs to assess how a full withdrawal would impact its military capabilities and business with US weapons manufacturers. Iraq still requires training, maintenance, and intelligence-sharing with the US. The latter, especially, constitutes a win-win for both sides in their cooperation to ensure there is no resurgence by the terrorist group Islamic State.
For Washington, a lasting defeat of the Islamic State remains the official objective for its roughly 2,500 US “advisors” in Iraq. This presence also implicitly acts as a deterrent against the militias, and as seen in the Western-led interception of Iran’s missile and drone barrage on April 13 is now part of a regional line of defense of Israel. These aspects of the US military presence in the country will ultimately dominate Washington’s decision-making, while intensifying pressure on the Sudani government to seek a full withdrawal.
Dollar restrictions
With President Biden, now more than ever, desperate for the troubles in the Middle East to abate in the run-up to the elections, Sudani may ask the US administration to hold off on imposing fresh sanctions on Iraqi individuals as well as gradually reduce the restrictions previously placed on the country’s banking system. Such an arrangement could relieve some domestic political pressure on Sudani if he is unable to secure a clear US commitment on a troop withdrawal.
In turn, Biden’s team may impose conditions, with these largely focused on extending the pause in attacks as well as upholding, if not toughening, Iraqi government measures to scrutinize the domestic banking system. But such an arrangement, while viable before Iran’s attack on Israel, is now dependent on Washington’s ability to prevent further regional escalation in the coming days and weeks. Iraq’s Central Bank has abided by US Treasury sanctions on local banks and even revoked the operating license of Iran’s Bank Melli in February, while reducing physical dollar amounts available for withdrawal and promoting electronic payment.
Almost all US dollars circulating in the Iraqi economy come from oil sales, with proceeds placed in the Central Bank’s account at the Federal Reserve Bank of New York and then transferred to the government, with some dispensed to pre-qualified banks at public auctions. These daily “Dollar Window” auctions have historically been manipulated by politically connected banks for arbitrage and smuggling to neighboring countries; though the mechanism also serves to support the official exchange rate through cash sales. Moreover, for a country that is largely import-dependent, especially for food, the auctions are a crucial way for Iraqi business to finance imports.
US measures restricting access to Iraq’s reserves last year, coupled with increased verifications of hard currency sales since November 2022, led to US dollar scarcity on the parallel market, putting pressure on the Iraqi dinar. Sudani revalued the dinar last year to shore up its value, but the gains were short lived. Securing an easing of restrictions would aid the government’s economic agenda as well as boost the prime minister’s public image at home.
Disputes with Kurdistan
One thorny issue that Sudani will be forced to tackle head on in Washington is his government’s inability to resolve outstanding disputes with the Kurdistan Regional Government (KRG). Iraqi Kurdistan has suffered an economic crisis since the March 2023 stoppage of oil exports to Turkey.
To their credit, the central and regional governments had reached a swift political agreement to resume exports in April 2023. But this goodwill did not extend to Iraq’s federal budget passed in June. The legislation, after pressure by anti-KRG members of parliament, mandated that Erbil hand over 400,000 barrels per day (bpd) of oil to the central government, either to export or domestically refine, in exchange for the KRG’s share of federal spending.
The KRG says it delivered 12 million barrels of oil last year by refining around 65,000 bpd over six months to the benefit of the central government and, hence, has fulfilled the mandate; but Baghdad has stuck to the law to the letter. Both sides accuse the other of non-compliance. Oil sales in the past made up some 60% of Erbil’s monthly revenues, and, as a result, it has been left with a significant gap, limiting its ability to disburse public sector wages, with many civil servants hardly paid in months.
Under constant pressure from Washington, the Sudani government has provided some relief through loans that bypass the budget legislation. The KRG estimates the total funds received in 2023 at $3.6 billion, but only $768 million of that is from the total budget share of $13 billion that it would have received had Baghdad deemed the oil mandate fulfilled. The financial injections are also intermittent and never sufficient to cover the full payment of salaries.
Iraq’s Ministry of Oil blames the non-resumption of exports on international oil companies operating in the Kurdistan Region, some of which are American. Both sides continue to have fundamental disagreements on the commercial terms necessary to hand over production. The firms insist that their signed contracts with Erbil are sacrosanct and demand surety of payment for past and future oil exports, while Iraq has offered measly compensation that is insufficient for them to recoup prior investments.
The overall situation has exacerbated living conditions for many Kurds, posing a challenge to the ruling Kurdistan Democratic Party’s (KDP) popularity and even empowering its historic rival, the Talabani-led Patriotic Union of Kurdistan (PUK), which has recently aligned increasingly with the SCF in Baghdad. Adding to the complexity, a late February decision by the Iraqi Federal Supreme Court imposed a province-based constituency system in the upcoming June 10 Kurdistan parliamentary elections, effectively granting more seats to the PUK in its populous stronghold of Sulaymaniyah Province. The ruling also abolished the religious and ethnic minority seats that the KDP traditionally won comfortably. The KDP, in turn, has retaliated by pledging to boycott the elections.
Just weeks before Sudani’s Washington visit, the court issued another ruling, this time only allowing payment for individuals on the KRG payroll through state-owned banks. Taken at face value, the decision relieves Kurdish civil servants from the uncertainty over the KRG’s fulfillment of the oil mandate and, crucially for Sudani, it provides proof of progress when pressed on the matter of salaries in Washington. To the KDP, however, the move is another blow that undermines its authority over regional affairs. Sudani’s hands are also tied: Despite what appears like genuine intent to resolve historic differences, his ability to push for a compromise within the SCF is limited.
Diversifying energy imports
One area, perhaps, where Sudani can earn points is by diversifying Iraq’s energy imports, which are currently dominated by Iranian natural gas and electricity. Especially in summer, when demand for electricity peaks because of scorching temperatures, Iranian imports make up 30-40% of Iraq’s available supply if sent at full levels, although volumes have proven increasingly unreliable because of Iran’s own growing demand.
Due to US sanctions on Iran’s banking system, Baghdad has struggled to pay Tehran for the imports. Funds had accumulated to the tune of $10 billion at the Trade Bank of Iraq last year. A 120-day waiver from the State Department is also required to import electricity, which is renewed as long as Iraq can demonstrate efforts to reduce its reliance on Iran.
Yet Iraq’s diversification projects are starting to bear fruit. Last month, the country began electricity imports from Jordan and is expected to receive supplies from the Gulf Cooperation Council’s (GCC) interconnected grid by summer 2025. Iraq and Saudi Arabia are also planning a separate link to join their grids.
In February 2023, the Sudani government ratified gas-focused development contracts that had been delayed by red tape since 2018, and the Ministry of Oil is in the process of holding two new hydrocarbons licensing rounds aimed at sparking exploration for gas in the country’s western region. Sudani has also approved the construction of a liquefied natural gas (LNG) import facility to tap various global suppliers, with plans to add strategic gas storage. Although still sourced through Iran’s pipeline network, Baghdad signed an agreement with Turkmenistan to import gas as well.
US Republican opposition
The Iraqi prime minister’s visit comes amidst pushback from Republican lawmakers on Capitol Hill. In a March 28 letter to President Biden, eight Republican congressmen expressed “deep concern” with the invitation. They asked the White House to pre-condition the visit on “the immediate reopening of the Iraq-Turkey Pipeline so that the Kurdistan Region is able to export oil” and that a “full cycle of oil sales and payments to Kurdistan and its oil investors” be secured.
Their letter adds that Biden “should not allow further U.S. dollar transfers to Iraq” until the Treasury Department ensures they “do not benefit the Iranian regime.” In similar letters, from Nov. 30 and March 11, including to the secretaries of State and Treasury, the Republican lawmakers also question the decision to renew the electricity waiver.
Conclusion
Sudani went ahead with his trip to Washington despite the myriad challenges laid out above, but his arrival has come during one of the darkest hours for US involvement in the Middle East. Sudani said he sees the visit as “an opportunity to transform the relationship between Iraq and the United States from a single-faceted one to a comprehensive one,” but given the events of the weekend, security matters will undoubtedly be front and center.
The results of Sudani’s visit will be a test of his premiership. His backers in the SCF will assess whether he can strike a compromise with Washington, especially given the potential prospect of another Donald Trump presidency. For the Americans, an agreement will serve as a test of the Iraqi leader’s ability to appease hardliners at home and keep them in check. Success on both sides could determine whether Sudani can keep his position against a future challenger.
Yesar Al-Maleki is an energy economist and analyst with a keen interest in the intertwining subjects of energy, geopolitics, and economics in the region. He is also a Non-Resident Scholar at the Middle East Institute.
Photo by Bernd von Jutrczenka/picture alliance via Getty Images
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