In addressing these complex subjects, I strive for an impartial and comprehensive perspective, avoiding ideological biases. Seeing the world as it truly is enables us to more effectively navigate its complexities. My goal is to understand and convey the intricate geopolitical dynamics that shape global financial markets and business landscapes, particularly the significant impact of Middle Eastern affairs on global oil markets, energy security, and regional business opportunities.
Amidst the significant geopolitical shifts in the Middle East, a crucial but underreported dynamic is Iran's growing influence over Iraq's economy and political landscape. Tehran can’t afford a replay of the 1980s, with a muscle-flexing, nationalist Iraq challenging their 1,600km shared border. And so, over the past two decades, Iran has strategically positioned itself, amidst the backdrop of US military withdrawal, to become a dominant force in Iraq.
In the last three years, Iran has executed a strategic takeover of Iraq's political and security systems, leveraging its influence to divert Iraq's substantial oil wealth. Despite losing the 2021 elections, Iran-backed factions maneuvered into power, notably influencing the selection of the prime minister and dominating the governance of the world's 5th largest oil producer. This ascension to power was orchestrated through calculated actions by Iran's Revolutionary Guard, aligned judges, and militia-affiliated politicians, significantly impacting Iraq's oil economy, freedoms, and intelligence services to cement their dominance. This transition has transformed Iraq into a resource-rich, militia-controlled state, exceeding the capabilities of Iran's other proxy networks as the economic powerhouse of Iran’s partner forces.
Since the invasion of Gaza, views of the US have significantly worsened, with 94% of Arabs taking a negative view of the American position in the war. Conversely, only 27% of Arabs evaluate the Iranian position in the war as negative while 48% view Iran’s position positively. This widespread disapproval of US policy towards Palestine and the high perception of Israel as a threat highlight significant challenges for regional diplomacy and underscore the complexities of Middle Eastern geopolitics.
Iraq has historically been a buffer against Iran's regional ambitions. However, the reduction of US military presence and the complexity of influencing Iraq without exacerbating anti-American sentiments or destabilizing the region further complicate this role. In contrast, Iran has entrenched its influence, highlighting a strategic recalibration in the region.
Initially, during Saddam's ascent to power, the United States observed his maneuvers with a degree of ambivalence, recognizing him as a counterbalance to the rise of Islamic radicalism following Iran's Islamic Revolution. Saddam's decision to wage war against Iran was seen through the prism of containing Tehran's revolutionary fervor, a move that inadvertently aligned with American interests.
Saddam's Sunni regime, known for its brutal suppression of dissent and particularly of Shia majority aspirations, managed to maintain a semblance of stability within Iraq. This stability was recognized by American intelligence, which noted Saddam's ability to blunt potential threats through a combination of ruthless power and strategic ethnic politics. This assessment was encapsulated in a declassified CIA report, which highlighted the unique relationship between Saddam and the Iraqi Shia population, suggesting a personal compact based on a mix of respect for his leadership and the economic benefits his regime provided.
On the other hand, if Saddam is assassinated or overthrown in a coup, we believe the Shias will not automatically support his successor. In our view, the Shias have something of a personal compact with Saddam. It is his charisma that they respect and his economic policies that they have benefited from so far [redacted]. The Iraqi experience suggests that Iran’s ability to successfully export its revolution is limited. Saddam’s ruthless use of power combined with astute ethnic politics have succeeded in countering radical appeals from Tehran for a Shia revolution. At the same time, Iraqi tactics are probably not transferable to the Gulf—none of the Gulf regimes has an internal security service as ruthless or effective as Iraq. A strong Iraq, however, will serve as a check on Iranian ambitions, thus furthering US objectives in the Gulf so long as a radical clerical regime is in power in Iran. Iraq’s Shias: Saddam Blunts a Potential Threat, Declassified CIA Report
However, Saddam's aggressive regional ambitions, particularly his invasion of Kuwait, marked a turning point in US-Iraq relations. This act of aggression was perceived as a direct threat to the regional balance of power and to American strategic interests, particularly the flow of oil from the Gulf. The subsequent US-led military response in the Gulf War under President George Bush Sr. was a demonstration of commitment to maintaining order in the Gulf region. Through meticulous consensus-building with international allies, the US sought to repel the Iraqi invasion and restore Kuwaiti sovereignty, thereby reinforcing a world order that would not tolerate aggressive territorial expansion.
This period of American foreign policy towards Iraq reflects a complex interplay of strategic interests, regional dynamics, and the challenges of dealing with a regime that, while serving as a bulwark against Iranian expansionism, also posed its own set of threats to regional stability and international norms.
The Iraq War and its Fallout
The 2003 invasion of Iraq, led by the United States and United Kingdom, marked a pivotal moment in the nation's history, ending the Ba’athist regime of Saddam Hussein. Initial reactions among Iraqis were mixed, with optimism for a new beginning tempered by the reality of Saddam's brutal dictatorship. This optimism, however, faced a critical blow when the US administration decided to disband the Iraqi military and remove all Ba’ath party members from their positions, a move that plunged Iraq into years of chaos and civil strife. Various armed groups emerged, contesting power and territory, and targeting both coalition forces and the nascent post-Ba’athist Iraqi state.
A brief period of relative calm in the early 2010s was disrupted by the rise of the Islamic State group, which, at its zenith, controlled significant portions of Iraq. It wasn't until 2017, with the support of a US-led and separate Iranian coalition, that Iraqi forces managed to reclaim much of the territory once held by the extremist group. Today, Iraq finds itself in its most stable condition since 2003, albeit still grappling with sporadic and localized violence. The country remains divided, and its people confront deep challenges that the Iraqi state struggles to address effectively.
”We were happy at first when the Americans came. Now they should keep out, no one wants them around”
Public opinion in Iraq has evolved significantly since the invasion. Initial polling in Baghdad showed a nearly even split in perceptions of the invasion's impact. Over time, however, a noticeable shift has occurred in the Iraqi public's sentiment. Today, only 35% view the coalition's entrance in 2003 positively, while 63% of Kurdish respondents saying that life is better now. Among Arabs, 48% of Sunnis say that life was better under Saddam, while amazingly 71% of Shias say life was better or the same under Saddam.
Formal US Policy Today is Noncommittal
In the years following the 2003 invasion of Iraq, the United States' military presence peaked at approximately 150,000 troops. Today, this number has decreased to around 2,500. This downsizing is in line with changing perceptions among the American public and veterans alike, over 60% of whom now believe the Iraq war was not worth the costs involved. Such sentiments underscore a broader re-evaluation of America's engagement strategy in the region coupled with American energy independence.
The current U.S. foreign policy, as outlined in the National Security Strategy of October 2022, advocates for a move away from military-centric approaches that have dominated American actions. By focusing on practical steps rather than grandiose schemes of reshaping the political landscape, the U.S. hopes to contribute more effectively to the long-term stability and growth of the Middle East.
Support De-Escalation and Integration in the Middle East Over the past two decades, U.S. foreign policy has focused predominantly on threats emanating from the Middle East and North Africa. We have too often defaulted to military-centric policies underpinned by an unrealistic faith in force and regime change to deliver sustainable outcomes, while failing to adequately account for opportunity costs to competing global priorities or unintended consequences. It is time to eschew grand designs in favor of more practical steps that can advance U.S. interests and help regional partners lay the foundation for greater stability, prosperity, and opportunity for the people of the Middle East and for the American people. October 2022, National Security Strategy
Iran's regional influence extends through a network of proxies and alliances. This influence is rooted in its strategic use of both financial incentives and ideological alignment, especially in conflict-ridden or politically unstable regions.
In Yemen, Iran's backing of the Houthi militia is a clear example of its strategy to extend its influence. By offering $100 per month to join the Houthi forces, Iran taps into the dire economic conditions in Yemen, where over 80% of the population lives below the poverty line. Comparatively, Iran's support for Hezbollah in Lebanon is substantially higher, with members of Hezbollah’s military wing reportedly receiving around $1,300 per month. This discrepancy in pay between the two groups reflects the varying strategic importance and operational costs associated with each proxy.
The role of Martyr Soleimani is pivotal and highly strategic in the Palestinian issue. In this regard, he promoted the Palestinian Resistance from using light weapons to employing very important weapons such as ballistic missiles, advanced drones, and important fighting technologies, he added. We can also introduce and describe martyr General Soleimani as the central authority in the operations of the Resistance in Palestine because he was the initiator of tunneling in Gaza and transferring arms to Palestine in certain ways, the analyst added. Mehr News, Iran State Media on Qassim Soleimani’s role in training Hamas.
The Iranian Revolutionary Guard (IRG) oversees the financing and training of these foreign militias. The Revolutionary Guard's involvement in these regions is not just military but also deeply political, aiming to create and sustain alliances that align with Iran's regional ambitions and ideological stance. Iran's approach in Yemen and Lebanon is part of a broader pattern of influence across the region, where it supports various groups to enhance its geopolitical reach and counterbalance the influence of rival powers, notably Saudi Arabia and the United States. However, this strategy of proxy warfare and regional intervention also attracts criticism and contributes to the complex dynamics of Middle Eastern geopolitics.
Tehran’s Capture of Iraq, Muqawama مقاومة
From 2019 to 2023, Iran-backed militias, collectively known as the resistance movement muqawama (مقاومة), have significantly influenced Iraq's political, military, and judicial landscapes, reflecting a deep entrenchment of Iranian influence. The sequence of events began with the muqawama achieving a form of state capture by securing government funding for the militia medley the Popular Mobilization Forces (PMF). However, challenges emerged, notably the U.S. elimination of key muqawama figures like Qassim Soleimani in January 2020 (and Abu Mahdi al-Muhandis, the head of the pro-Iran Kata'ib Hezbollah militia) and the setback in the 2021 elections where Moqtada al-Sadr's cross-ethnic nationalist Shia bloc outperformed Iran-backed factions, signaling a potential shift in Iraq's political balance. Despite these challenges, the muqawama adeptly navigated the political terrain, leveraging judicial maneuvers by strategically placed Judge Faiq Zaydan, who issued rulings that obstructed the formation of a government excluding muqawama factions. This judicial activism led to a muqawama appointed prime minister, and underscores Iran's long-term strategy to influence Iraqi institutions and safeguard its interests.
Muqawama control of Iraq’s government—now without even a notional sharing of the spoils with Moqtada al-Sadr—puts the Iraqi militias into a league of their own as the economic powerhouse of Iran’s partner forces. Iran’s longest-serving proxy, Lebanese Hezbollah, and Iran’s newer Yemeni partner, the Houthi movement, are economic minnows compared to the Iraqi state. The Shi`a Coordination Framework-led government’s first budget is the largest in Iraq’s history: $152 billion in annual spending for three consecutive years, a roughly 50 percent increase from the last authorized Iraqi budget from 2021. In contrast, a bankrupt Lebanon’s expected spending was under $2 billion in 2022, and the country went $72 billion further into debt due to massive financial losses since 2021. The Houthi enclave in Yemen also has a measly budget of around $2 billion per year. Iraq’s New Regime Change: How Tehran-Backed Terrorist Organizations and Militias Captured the Iraqi State, CTC
By the end of 2022 and into 2023, the muqawama, under the aegis of Prime Minister Mohammed Shia al-Sudani, embarked on a comprehensive restructuring of Iraq's security and intelligence apparatus, embedding loyalists within key institutions. This purge targeted officials aligned with the West and previous Iraqi administrations, reversing efforts to curtail Tehran-backed militia penetration. The National Intelligence Service, Counter-Terrorism Command, and other critical agencies saw significant leadership changes, ensuring muqawama dominance. These developments, coupled with the establishment of entities like the Muhandis General Company, mark a strategic consolidation of power, enhancing Iran-backed militias' control over Iraq's security, economic, and political spheres, thereby altering the country's trajectory in favor of Iran's regional ambitions.
قال لي سائق تكسي أيراني في دولة أوربية،عندما عرف أني عراقي،الله يخلصكم من نظام الملالي في طهران!أجبته الله يخلصكم انتم اولاً منه. أجاب،لا ،عندما يتخلص العراق من سيطرة الملالي سيسقط النظام عندنا بالضرورة! قلت لماذا؟قال لأن أقتصاد النظام يتنفس من بغداد!! رجل بسيط لكنه حكيم An Iranian taxi driver in a European country said to me, when he learned that I was Iraqi, “May God save you from the mullahs’ regime in Tehran!” I replied, “May God save you from it first.” He replied: No, when Iraq gets rid of the mullahs’ control, our regime will necessarily fall! I said why? He said because the regime’s economy breathes from Baghdad!! A simple but wise man. Munqith Dagher, MENA Director of the Washinton Institute for Near East
Gaza Deepens Divide Between the US and Middle East Population
The events starting from October 2023, exacerbated divisions between Arab states and the United States, capitalizing on escalating tensions in the Middle East. Through these efforts, Iran has effectively spotlighted Israel's aggressive stance and contributions to the humanitarian crisis in Gaza. The widespread anti-Israel and anti-America sentiment, particularly in Iraq and Yemen, serves Iran's interests by fostering regional discord aligned with its anti-Western agenda.
Israel and America Seen as the Largest Regional Security Threats
Arab Public Opinion about the Israeli War on Gaza
Prior to the recent conflict, surveys showed that, 84% citizens across the Middle East, perceive Israel as a threat to regional security and stability, with the United States closely following at 78%. This sentiment underscores the deep-rooted tensions and mistrust that exist towards these nations within the Arab world. Conversely, Iranian policies are viewed as a threat by 57% of respondents, on par with perceptions of Russian policies.
Why is Now The Moment for Tehran?
Several critical but underreported factors are shaping the future beyond the well-publicized issues of Saudi-Israel normalization, the US withdrawal of forces, and Iran's pursuit of nuclear capabilities. This includes Iraq's potential for economic growth and the ripe domestic conditions for Iranian-backed groups to gain ground.
For two decades, Iran found itself sandwiched between formidable US military presence in Iraq and Afghanistan. Now, as the US has completely reduced its military footprint, Iran perceives an opportunity to assert its influence and reorder regional dynamics to its advantage. Keen to avoid a return to the confrontational days of the 1980s when a nationalist Iraq posed a significant challenge along their 1,600km shared border, Tehran is seeking control of it’s Arab neighbor.
After the domestic tumult following the death of Mahsa Amini in September 2022, some analysts viewed Iran at a juncture reminiscent of the 1979 revolution. These protests, signaled a deep-seated dissatisfaction with the ruling regime. Tehran has since sought to deflect internal scrutiny by rallying against external adversaries.
A comprehensive survey conducted by GAMAAN in February 2022 (before the protests), involving over 20,000 participants from within Iran, unveils a populace that overwhelmingly favors democratic governance over theocratic rule. With 88% of respondents endorsing democracy as either "fairly good" or "very good", and a mere 28% viewing a religiously governed system positively, the dissonance between the government's ideological stance and public sentiment is starkly apparent. These findings underscore a critical domestic weakness for Iran's Islamic leadership which places the Iranian regime in a precarious position, potentially impacting its regional ambitions and strategies.
Independent, Unsanctioned Iraq Would Overpower Iran in Years
The oil industry is the linchpin of the Iraqi economy, accounting for nearly half of its Gross Domestic Product (GDP) and over 92% of export earnings making the Iraqi economy particularly sensitive to oil market fluctuations. Despite its economic challenges, Iraq is on the cusp of growth opportunities.
It’s obvious that Iraq's economic future lies in diversifying its economy beyond oil dependency, but dealing with corruption and maintaining security are vital. One of the challenges Iraq faces is managing foreign influence, particularly Iran and Turkey, both of which have a substantial military and militia presence within Iraqi borders. While Iraq has the public oil revenue for infrastructure investments, the United Arab Emirates is a crucial ally, being the main source of FDI for Iraq. Iran is Iraq’s largest source of imports.
This geopolitical complexity is further compounded by the need to steer clear of U.S. sanctions to maintain and enhance its economic growth trajectory relative to regional competitors like Iran.
The graph below illustrates that while Iraq's economy is heavily oil-dependent, it is on par with Iran when considering the Michael Beckley national power (GDP * GDP per capita) metric, a measure that combines economic size with wealth per inhabitant. For the first time in decades, Iraq’s GDP is comparable to Iran and also boasts a higher GDP per capita. This power parity will unsettle Tehran deeply. Tehran desperately wants to avoid risking the development of an Iraq that can challenge Iran as it did in the 80’s. Tehran has limited time to act to gain influence over Iraq, and since gaining influence in 2021 the two economies have been growing together.
Iraqi’s viewed Iran as the biggest threat Pre-invasion
Prior to the Gaza invasion, when asked about the primary threat to their own countries, 28% of participants identified Israel, with the United States and Iran cited by 13% and 9%, respectively. Most citizens surveyed see Israel as the biggest threat to their respective countries. However, almost half of Iraqis view Iran as the main threat to their country, so for increased influence, Tehran has used the Gaza crisis to turn the spotlight toward America.
Iraqis Don’t Trust Government and are Looking for Strong Leadership
Despite the Iraqi populations strong opposition to Iranian influence, their low trust in the government and desire for strong leadership combined with high confidence in the military creates a fertile ground for Iranian influence. The situation is further complicated by the government's harsh response to protests foreign interference, where they successfully quelled popular unrest. Additionally, 45% of Iraqis say political reform should happen all at once, while another 45% say it should happen bit by bit. These dynamics provide Tehran with many openings for gaining control of military forces and government administration in Iraq. Tehran has been able to frustrate and derail stabilization efforts in Iraq such that it can manage the development of Iraq in it’s own image. The exhausted Iraqi political elite and population has been worn down over time and increased anti-Israel/US sentiment provides even more opportunity for increased Iranian control.
Source: Centre for Insights in Survey Research
What Has Tehran Achieved in its Regional Agenda? + Key Takeaways