Iraq vies for the attention of a distracted Washington

Biden is hosting Iraqi PM Mohammed Shia' Al Sudani in Washington next week. While the two leaders have a host of festering issues to iron out, Iraq seems to be the least of US concerns at the moment.

Iraqi Prime Minister Mohamed Shia al-Sudani (R) speaks at a meeting with top-ranking officials of the US-led coalition as part of the first round of talks on the future of US troops in the country, in Baghdad on January 27, 2024.
Iraqi Prime Minister Mohamed Shia al-Sudani (R) speaks at a meeting with top-ranking officials of the US-led coalition as part of the first round of talks on the future of US troops in the country, in Baghdad on January 27, 2024.

Iraq vies for the attention of a distracted Washington

The massive American embassy in Baghdad enjoys a prime location looking over the Tigris River, but many of its offices are empty. It was built for a staff of over 1,000, and when it opened in 2007, representatives from 14 different American government ministries and agencies worked there.

I was standing near Ambassador Ryan Crocker at the opening ceremony when he said the new embassy would launch a new era in American-Iraqi relations. But 17 years later, many of those agencies and departments have departed: the Treasury Department, the Agriculture Department, the Commerce Department, and others have quit Iraq.

Frequent Iranian-backed militia attacks against the embassy are one reason, but starting with the Obama administration, American interest in Iraq soured, and Washington’s attention shifted towards Asia and Europe.

The strategic framework agreement that Crocker signed rarely gets the kind of high-level attention in Washington that fighting between pro-Iranian militias and American forces in Iraq receives.

Prime Minister Mohammed Shia' Al Sudani is visiting Washington next week to try to energise the agreement, but he finds many American concerns about Iranian influence in Iraq.

A new security relationship

After the ISKP attack in Moscow, some American officials again warned about the terrorist group’s threat, but a joint report from the State Department and the Defense Department in February concluded that the threat from IS in Iraq is “largely contained.” According to the report, IS “is prioritising its own security in Iraq over executing frequent attacks.”

The report added that “Iraqi security forces continued to weaken the group's ability to restore its insurgency’s core capabilities and restrict its freedom of movement.”

This assessment—which comes from American officials on the ground in Iraq—shows why Al Sudani thinks the international coalition to fight IS in Iraq has succeeded in its mission.

The US embassy compound is pictured in Baghdad's Green Zone on May 20, 2019, in the Iraqi capital.

In addition, the report warned that American drone strikes against Iranian-backed militias were having a “negative effect on relations between American advisors and Iraqi partners.” Facing both unhappiness within the Iraqi security forces and the militias and their political allies, Al Sudani wants a change in the way the American military is operating in Iraq.

However, the prime minister does not want to exaggerate the change despite statements from his office and the Iraqi army earlier this year that ongoing negotiations between the Iraqi government and the international coalition would lead to the withdrawal of American forces.

A senior Iraqi general told al-Arabiya late in March that Iraq does not need “big international forces.” This suggests small forces will stay.

On the American side, officials will emphasise that they are not under pressure from Iraq—or from Iran—to withdraw all their forces from Iraq, and their mission to build Iraqi capabilities will continue.

In his 15 April meeting with Al Sudani, Biden will not want to discuss details of the future mission of American military advisors in Iraq.

Instead, Biden and the Pentagon will want Al Sudani to accept the conclusions from the Iraqi coalition military technical committees that are evaluating Iraqi security force capabilities in planning and control of military operations and exploiting intelligence.

The Biden administration does not want to propose the exact number of future American advisors in Iraq until it understands what missions those advisors would have.

On the Iraqi side, Al Sudani wants continued American military assistance and training. Baghdad needs help maintaining its F-16 warplanes and Abrams tanks. The Iraqis want this help under a bilateral agreement.

There is already an office of security cooperation from the Defense Department in Washington in the American Embassy that could, in theory, take on this role, as occurs in bilateral American military agreements with other countries such as Egypt and Jordan.

Al Sudani, however, will have to convince the militias and their allies that some American soldiers are still needed even for a reduced advising mission in Iraq. The militias and their Iranian patrons will wonder how many lethal drones the Americans would keep in Iraq with their reduced presence.

US officials will emphasise that they are not under pressure from Iraq—or from Iran—to withdraw all their forces from Iraq.

Importance of US Treasury

While American military deployment in Iraq gets most of the media attention, the Treasury Department and the US dollar are probably more important to most Iraqi citizens trying to make ends meet.

Iraq's oil exports now average about 3.3 million barrels daily; the Iraqi Oil Ministry said January's earnings were $8bn. The earnings are deposited in an Iraqi government account at the Federal Reserve Bank in New York.

According to Reuters, the account had over $100 bn in early 2024. The account in New York gives the American government gigantic leverage against Iraq.

The Federal Reserve Bank, on orders from the Treasury Department, has opened and closed the faucet of dollars back to the Central Bank of Iraq depending on Iraqi compliance with American sanctions against Iran.

Closing the faucet raises the price of dollars, making imports of food products much higher in Iraq and creating serious political headaches for the prime minister.

Washington wants the Iraqi Central Bank to plug the leakage of dollars from Iraq to Iran. Last year, it banned 14 Iraqi banks from conducting transactions in dollars, and last January, it imposed sanctions on al-Huda Bank for illicitly transferring dollars to Iran.

Later, in January, the Iraqi Central Bank banned another eight Iraqi banks from conducting transactions in dollars. A third of Iraq's commercial banks are now banned from using dollars.

Eager to avoid more American disruptions to the sensitive exchange rate and Iraq's banking sector, the prime minister himself met with an assistant secretary of the Treasury during her September visit to Iraq and the under-secretary of the Treasury, Brian Nelson, during his January 2024 visit to Baghdad. 

Under American pressure, the Iraqi government is pushing companies and citizens to use Iraqi dinars instead of dollars for business inside Iraq.

More Iraqi banks now use the international SWIFT system for foreign currency transactions. These SWIFT transactions are under surveillance from the US Department of Treasury, which can block possible transfers of dollars to entities and countries under sanction.

(It is worth noting that the intelligence office of the Treasury Department has grown substantially over the past 15 years because of American sanctions on many countries.)

During his Washington visit, Al Sudani will emphasise that his government is taking serious steps. He would like the Treasury to restore permission for some Iraqi banks to use dollars again in their business.

The Treasury Department has acknowledged that Baghdad has made progress in bringing Iraqi banks up to international standards against money laundering and preventing money from going to terrorist groups.

However, after an Iraqi militia killed three American soldiers in Jordan on 28 January, a Treasury Department official stated that Washington expects Baghdad to help it identify and disrupt the financing of Iranian-backed militias.

Al Sudani will likely reiterate his government's commitment to uphold international standards while emphasising that his government will need some time to eliminate all dollar flows to the militias.

A question Washington is mulling is how to convince the Iraqi prime minister to use the Iraqi budget funding many of the militias to compel them to stop attacking foreign forces and foreign countries.

While US military deployment in Iraq gets most of the media attention, Iraqi citizens are just trying to make ends meet.

Energy and investment

Washington is not seeking big new oil deals. Instead, the Americans accent helping Iraq achieve what they call energy independence. But what they really want is to halt the trade between Iraq and Iran in energy products—especially Iraqi imports of Iranian electricity and natural gas.

Biden is under political attack from the Republican Party for giving Iraq an exception to sanctions to pay hard currency to Iran for electricity imports. To diminish Iraq's reliance on Iranian electricity, the Americans are encouraging more progress on projects to link Iraq's electricity network to the networks of Jordan and Saudi Arabia.

Washington is also encouraging Iraq to develop a plan to stop burning gas flared from oil wells and use it to replace Iranian natural gas imports.

For its part, Baghdad would like American investment in its energy sector. The Americans have pointed to the difficult investment climate in Iraq. The huge American company Exxon has withdrawn from the big Qurna field in southern Iraq.

Officials from the State Department and the influential American special envoy Amos Hochstein have told Baghdad also that American firms that invested in energy projects in the Kurdish Region of Iraq now suffer from Baghdad's insistence that all future hydrocarbon contracts must move from production-sharing to profit-sharing.

The companies in the Kurdish region refuse contract changes, and thus, Baghdad continues to close the Kurdish pipeline to Turkey.

In recent weeks, the Iraqi foreign and oil ministers said that Baghdad could amend its budget to pay higher compensation for international companies' production costs in Iraqi Kurdistan.

However, the parliament has passed no amendment yet, and the debate will likely be contentious. Even if the parliament amends the budget to allow the government to negotiate with the companies, the negotiations between Baghdad and the companies will be difficult.  If the Biden administration raises this commercial problem, Al Sudani can only offer vague promises.

Baghdad-Erbil mediation

Resolving this Kurdish pipeline issue would boost Al Sudani's standing in Washington. A group of Republican Party members of Congress, led by Senator Tom Cotton, a close ally of Donald Trump, issued a letter last month criticising Biden for agreeing to receive Al Sudani.

Cotton's letter indicates deep distrust of Iranian influence in Baghdad. It highlighted the problems of the oil companies in the Kurdish Region as a sign of Al Sudani's hostility to the Kurdish Region in Iraq, widely seen in Washington as America's closest friend in Iraq.

American Ambassador Alina Romanowski has visited Erbil twice in the past two months from Baghdad, urging that Al Sudani's federal government and the Kurdish Region government resolve differences over issues such as the national oil law, salary payments of Kurdish Region government employees and elections in the Kurdish Region now scheduled for 10 June.

The Barzani leadership in Erbil hopes Biden will press Al Sudani to make concessions on these issues. The Biden team is likely sympathetic to some of Erbil's arguments.

However, it is difficult to imagine President Biden going into detail to pressure Prime Minister Al Sudani about the issues dividing Baghdad and Erbil.

Biden is not George W. Bush, and America's role in Iraq in 2024 is not what it was in 2004 or 2014. Instead, Biden's attention and political future are more concerned with Gaza. 

The Americans will have their list of issues for Al Sudani, but the bilateral strategic framework agreement concerns technical assistance and small projects. There will be no major new American initiative for Iraq in the last six months before the US election.

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