Iran—Iraq’s Unavoidable Neighbor and America’s Bitter Pill

One of the most ironic and adverse strategic outcomes of the 2003 U.S.-led invasion of Iraq was the elimination of Saddam Hussein’s Baathist regime and the subsequent empowerment of a far more formidable U.S. opponent—the Islamic Republic of Iran.

Washington’s declared strategy aims to promote “a secure, stable, sovereign Iraq free from malign influence.” However, Iran’s grip on Iraq has strengthened, anchored by an array of Shia militias that align with Tehran’s strategic objective of expelling the U.S. and other foreign forces from the country and the wider region, despite differing local agendas.

The conflict in Gaza has become an arena for Iran’s regional proxies, including allied Iraqi paramilitaries, to confront the United States and Israel militarily. This situation has put Iraq at risk of being dragged into a broader conflict and presented Washington with what appear to be unpalatable choices.

Iran’s Grip on Iraq

During their prolonged and bloody relationship with Saddam Hussein, Iran’s leaders established lasting connections with all major Iraqi opposition groups. In the post-Saddam era, Iran has aimed to ensure that any Iraqi government in power in Baghdad remains weak and subservient to its interests. To achieve this objective, Iran has attempted to shape Iraqi politics by collaborating with Shia and Kurdish parties. A key instrument through which Iran wields its influence in Iraq is its network of proxy militias.

Numerous Shia paramilitary groups have surfaced in Iraq during various periods for specific purposes. Some were formed in exile in Iran during the 1980s to combat Saddam Hussein in the Iran-Iraq War. Notable among these is the Badr Organization, which has enjoyed a close relationship with Iran’s Islamic Revolutionary Guard Corps (IRGC) since its founding in 1982–1983. Iran-backed paramilitary entities expanded both during the American occupation period of 2003–2011 and in response to the rise of the Islamic State (ISIS) in 2014.

The Popular Mobilization Forces (PMF) or Al-Hashd al-Shaabi, an umbrella organization of primarily Shia paramilitary groups, emerged in 2014 to counter the threat posed by ISIS and played a crucial role in its defeat. The IRGC, particularly its Quds Force, was instrumental in supporting the PMF, providing essential training and strategic direction, as well as advising and leading operations.  

The most powerful components of the PMF, both militarily and politically, are those backed by Iran, namely Kata’ib Hezbollah, Asa’ib Ahl al-Haq, and Harakat Hezbollah al-Nujaba. These factions, alongside other PMF groups, are “hybrid actors.” They operate as integral components of Iraq’s security apparatus while also maintaining autonomy as militias closely aligned with Iran. They function as military units in combat while openly engaging in Iraqi politics through party affiliation and membership in the Shia Coordination Framework (SCF), an umbrella bloc of Shia parties. They also fulfill quasi-governmental roles by delivering social services and engaging in local governance. This hybridity underscores the complexity of their role within Iraq’s security and political landscape, as well as Iran’s influence over it.

Iran’s backing of PMF entities and their significant contribution to defeating ISIS and reclaiming territories in Iraq bolstered Iran’s political influence in the country. A majority of pro-Iran groups within the PMF united politically under the Fatah Coalition, securing forty-eight seats in Iraq’s 329-member parliament during the 2018 elections. This consolidation of power enabled the coalition to exert significant influence in the formation of the government. With the Islamic State all but defeated by the end of 2018, Iran-allied militias redirected their efforts toward expelling the United States from Iraq and consolidating control over the Iraqi state. This project appeared to lose momentum with the onset of the grassroots Tishreen (October) protests in 2019.  

Once celebrated as heroes, Iran-allied militias lost favor with the Iraqi public due to their corrupt and repressive practices, eroding their legitimacy and popularity. Iran’s supporters suffered setbacks at the ballot box during the October 2021 parliamentary elections. Prime Minister Adel Abdul Mahdi, whose party had long maintained ties with both the Badr militia and the Iranian government, had been compelled to resign in 2019. The militias’ strength and weaknesses became evident in August 2022, when political tensions and violent clashes between the SCF aligned with Iran, and their rival, Muqtada al-Sadr, pushed Iraq to the brink of civil war.

Yet, despite facing numerous challenges and setbacks since 2018, the PMF has demonstrated resilience in overcoming weakened leadership, internal divisions, electoral defeats, and a loss of public support. It has endured pressures stemming from the January 2020 assassinations of its former commander, Abu Mahdi al-Muhandis, and his Iranian sponsor, Qassem Soleimani, as well as from actions taken by former Prime Minister Mustafa al-Kadhimi. Indeed, the PMF has solidified its position within the Iraqi state. With the impressive showing of its candidates in the December 2023 provincial elections, the PMF has deepened its infiltration of Iraqi state institutions, expanded its economic capabilities, diversified revenue streams, and broadened its patronage network. The PMF now mirrors the model of the Islamic Revolutionary Guard Corps, an outcome in line with Iran’s strategic objectives.

Iraq’s Predicament

Iraq has paid a high price for Iran’s support of militias and expanding influence. Iranian-backed paramilitaries have intensified sectarian tensions and weakened the central government, causing instability. These forces, often acting outside the law, are linked to human rights abuses and hinder economic growth. They have also contributed to the polarization of Iraq’s political structure into pro-Iran and pro-United States camps.

Iran’s influence has dragged Iraq into regional conflicts, making it a proxy battleground for United States-Iran tensions that have placed Iraq in a complicated and increasingly untenable situation. To be sure, Iran’s actions in Iraq are far from altruistic, as illustrated by its support for paramilitary forces and other malign activities. Nevertheless, Iran is the unavoidable neighbor, with an economy interlinked with Iraq’s and a future that is inextricably connected.

Iraq can ill afford strained relations with Iran. Tehran wields significant economic influence over Iraq through its gas exports, upon which Iraq depends for roughly half of its domestic electricity production. Iraq imports gas from pipelines that enter the Basra and Diyala provinces, with gas going to several power plants. In exchange, Iraq’s Electricity Ministry has deposited payments in the National Iranian Gas Company’s (NIGC) account at the Trade Bank of Iraq (TBI). However, the issue of Iraq’s gas imports has become entangled with the adversarial United States-Iran relationship, as Iraq’s purchases have been subject to U.S. financial sanctions.

Since 2018, the U.S. State Department has provided temporary sanctions waivers, which have allowed Iraq to purchase energy from Iran to meet its electricity needs. Nonetheless, the sanctions, which until recently included the condition that all revenue be kept in an escrow account in Baghdad, thereby denying Iran access to it, have sparked payment disputes. Last year, for example, Iran declared it would cut gas exports to Iraq by more than 50 percent as of July 1 after Baghdad failed to secure Washington’s approval to disburse owed funds. However, Tehran subsequently agreed to resume gas exports in exchange for crude oil. The same month, to spare Iraq from unpopular power cuts due to Iranian supply cutoffs, the Biden administration revised its sanctions policy, allowing payments to be deposited into non-Iraqi banks in third countries instead of in restricted accounts in Iraq.  

The United States has issued waivers to give the Iraqi government time and political space to reduce its reliance on Iranian energy. However, Baghdad has made minimal progress, and the timeline for Iraq to achieve energy independence from Iran continues to be pushed back. In March, the al-Sudani administration extended Iraq’s contract to procure natural gas from Iran for another five years, a move that likely does not sit well with Washington. The next month, following the release of a Joint Statement on the United States-Iraq Higher Coordinating Committee acknowledging Iraq’s historic opportunity to invest in energy infrastructure, Iraqi and U.S. companies signed a series of agreements to capture natural gas flared from Iraq’s oil fields and use it to produce domestic power while reducing dependence on Iran for energy. However, the dual-purpose U.S. project of pushing for Iraq’s energy independence and isolating Iran seems years from materializing.

U.S. Dilemmas

The sharp increase in regional tensions over Israel’s war in Gaza has raised further questions about the viability of the two-decade American military presence in Iraq. The expulsion of U.S. forces from Iraq has been a long-standing objective for Tehran and its Iraqi paramilitary and political allies. Since emerging in October 2023, the purportedly new Islamic Resistance in Iraq (IRI), comprising Iranian proxies, front groups, and other pro-Iranian elements, has been implicated in at least 180 attacks targeting U.S. or other international forces, as well as U.S.-contracted logistical supply companies, both directly and indirectly. The Gaza war broke a months-long pause in militia assaults on U.S. targets within Iraq, prompting pro-Iran factions operating under the IRI banner to initiate a fresh wave of attacks.

The deadly drone attack in January that killed three service members and wounded scores of others at Tower 22, a U.S. military base in northeastern Jordan, marked a major escalation in the Gaza war and the attendant exchanges between Iran-backed paramilitaries and the United States. Denying involvement in the attack, Kata’ib Hezbollah declared a suspension of military operations against U.S. forces in the region, ostensibly to prevent the “embarrassment” of the Iraqi government but more likely to forestall American retaliation. The United States nonetheless staged an air assault on dozens of sites in Iraq and Syria, including a retaliatory strike in eastern Baghdad that killed Wisam Mohammed Saber al-Saedi, a senior Kataib Hezbollah commander.

Since pausing its attacks on U.S. forces in January, the Islamic Resistance in Iraq has focused exclusively on Israel. In March, Iraqi militia groups aligned with Iran claimed for the first time that they had targeted Israel following a drone attack on Ben Gurion Airport. In May, the group took credit for attacks on Tel Aviv. In early June, the Iraqi Islamic Resistance targeted Eilat and Haifa. The continued attacks highlight the inability of the Baghdad government to control the militias, largely due to the considerable influence of the IRGC.

U.S. retaliatory strikes on Iran-aligned militias have deepened rifts within the Iraqi government and between U.S. and Iraqi officials over security relations. In 2019, protestors denounced foreign interference with slogans like “No to America, no to Iran.” Iran’s influence led to a January 2020 vote by Iraq’s parliament to expel U.S. troops. In 2021, the al-Kadhimi administration agreed to a U.S. military training and advisory role that left 2,500 American troops in Iraq. With Iran-friendly Prime Minister al-Sudani, the SCF and militias may now have the power and legal grounds to revoke consent for any U.S. presence. Furthermore, the Gaza conflict and recent U.S. strikes in Iraq have played into the hands of Iranian-backed groups, helping them craft a narrative that weakens moderate voices. In January, the Iraqi government and the United States formed a commission to draft a timeline for U.S. troops to leave Iraq.

In the United States, the debate about the wisdom of maintaining a military presence in Iraq is ongoing. Proponents argue that the costs of withdrawal outweigh the benefits of staying for training and equipment purposes. They claim that calls for withdrawal come from Iranian-allied militias, whose leaders follow guidance from the IRGC. They also warn that withdrawal could lead to Washington’s political disengagement, undoing the progress made by Iraqi armed forces since 2014 with U.S. support and making it harder to counter Iranian influence.

Others contend that Washington should withdraw troops or move them to Iraqi Kurdistan, where they are more welcome while leveraging economic power instead. They argue that the small U.S. force is ineffective in preventing Iran from establishing hegemony over Iraq and that its presence offers Iran and its militias easy targets, risking further escalation.

Diluting over Dismantling

Iraq’s ethnosectarian power-sharing arrangement (muhasasa)—a quota system that allocates power based on the relative political influence of competing factions—is widely criticized as a symbol of a flawed political structure that led to a sectarian civil war, entrenched widespread corruption, and resulted in dysfunctional governance.

Underappreciated is the extent to which Iran has strategically exploited this system’s sectarian divisions for its own benefit. Following the rise and fall of the Islamic State in Iraq, Iran intensified its efforts, ultimately gaining a dominant position in the country while contending with the United States. The IRGC, particularly its Quds Force branch, has worked diligently to influence Iraqi politics, notably through support for allied Popular Mobilization Forces. In turn, the creation of the Muhandis General Company—an economic conglomerate controlled by Iran-backed paramilitaries and their political factions—virtually guarantees a continuous flow of government funds to the PMF.

To be sure, Iraq and Iran have a complicated relationship. Although Mohammed Shia al-Sudani was selected from the SCF, a political bloc with members close to Iran, this has not insulated him from having to grapple with vexing issues related to Iran. These issues encompass water sharing and territorial disputes in the Persian Gulf, as well as efforts to tighten border control to prevent smuggling and limit the actions of Iranian Kurdish opposition groups based in Iraqi Kurdistan. The latter has strained relations between Tehran and Baghdad, as well as between Baghdad and Erbil. 

Meanwhile, amid the conflict in Gaza, Iraq has been thrust into the middle of an incipient proxy war between Iran and the United States. As Iraqi Shia armed groups, with Tehran’s approval, have become involved in the conflict by launching attacks against U.S. military installations from within Iraq and against Israeli targets, the risks and consequences for Iraq have escalated. This situation has brought to the forefront several contentious issues, including the security implications of the U.S. security role in Iraq, particularly regarding whether the benefits of an ongoing presence of American troops outweigh the risks for either party. 

As U.S. policymakers contemplate the direction of Iraq policy, it would be prudent for them to focus not on dismantling Iran’s hold on Iraq but rather on diluting its influence. They should also recognize that the kinetic responses of American intervention against Islamic resistance groups have failed to modify their conduct or reduce their sway in Iraq. Additionally, they would benefit from recognizing Iraq’s distinct challenge in managing its closely intertwined relationship with Iran—its primary trade partner, the predominant external actor in Iraq’s security landscape, and a nation long engaged in “shadow wars” with the United States and its regional partners. 

At the same time, it is essential to note that Iranian-affiliated political factions in Iraq, despite their material resources and resilience, are experiencing a decline in public backing, encountering challenges in rallying new supporters, and falling short in broadening their voter base. There are growing fractures within the Iraqi Shia bloc, which could undercut Iran’s influence. Ultimately, diminishing this influence requires strengthening Iraqi state and civil society institutions. While the United States might be faced with the unpalatable options of either withdrawing its military forces or maintaining them, each with its associated risks, even the departure of American troops should not preclude Washington from continuing—and potentially intensifying—its political and economic engagement in Iraq and encouraging its Western allies and Arab partners to do likewise. 

Dr. John Calabrese teaches international relations at American University in Washington, DC. He is the book review editor of The Middle East Journal and previously served as director of MEI’s Middle East-Asia Project (MAP) and as general series editor of MEI Viewpoints. He is the author of China’s Changing Relations with the Middle East and Revolutionary Horizons: Iran’s Regional Foreign Policy. Follow him on X: @Dr_J_Calabrese.

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