US forces are set to leave their last remaining bases in Iraq on Wednesday, ending a military presence shaped by more than two decades of war. Iran and its allies have celebrated the departure as a victory, but Washington retains significant influence over Iraq through an enduring arrangement under which the country’s oil revenues remain in the custody of the Federal Reserve Bank of New York.
The financial system dates to the US-led invasion of Iraq in 2003. The Coalition Provisional Authority, established and led by the United States, created the Development Fund for Iraq, which was held at the New York Fed and intended to collect the country’s oil income for reconstruction and development. The arrangement was also designed to shield Iraqi oil revenues from lawsuits and other claims connected to the rule of Saddam Hussein.
The system was established through an executive order issued by then-US President George W. Bush and subsequently renewed by every US president. The Development Fund eventually became an account belonging to the Central Bank of Iraq at the Federal Reserve Bank of New York, where Iraqi oil revenues remain held today.
The arrangement gives Washington considerable leverage because oil is Iraq’s dominant source of state income, accounting for about 90% of the government budget. Iraqi officials told Reuters that the system has provided financial stability and helped maintain international confidence in the management of the country’s oil revenues, while facilitating access to US dollars required for trade and imports.
The influence of the system became particularly apparent in 2020, when Iraq asked the United States to withdraw its troops. Washington reportedly threatened to restrict Iraq’s access to funds held at the New York Federal Reserve, after which Baghdad backed down. Although Iraq has acquired greater control over its financial affairs since the early years of the US occupation, the financial relationship has remained.
Iraqi officials said the arrangement also protects oil revenues against external claims and financial shocks, including lawsuits and creditor demands. It supports exchange-rate stability and confidence in the Iraqi economy while helping strengthen domestic financial institutions. The system also gives the Iraqi government greater ability to restrict access to dollars for groups seeking to move funds outside formal channels.
That issue has acquired additional significance because of Iran’s economic links with Iraq. The United States imposed sanctions last year on Iraqi banks and individuals it accused of laundering money for Iran. Restrictions on the supply of US dollars have also contributed to the emergence of an informal market, producing a gap between the official exchange rate established by Iraq’s central bank and the price available on the black market.
President Donald Trump has maintained a policy of maximum pressure on Iran during his second term, leaving Iraq caught between its economic ties with Tehran and Washington’s financial influence. The war launched by Trump and Israel against Iran on February 28 added further pressure on Baghdad, as Iran has used Iraq as an important economic channel.
Iraq historically supplied dollars through daily auctions, formally known as the foreign currency window, in which private banks and exchange houses could buy US currency using Iraqi dinars. Iraq formally ended the auction system at the beginning of 2025 following significant US pressure as part of a wider campaign against the alleged diversion of dollars to sanctioned entities, particularly Iran.
Despite the departure of American troops from Iraq’s remaining bases, the country’s oil revenues therefore continue to pass through a financial system established after the 2003 invasion.
