Iraq’s economy: between protecting revenues and losing financial decision-making power
Iraqi Oil Revenues in New York: Economic Stability or Managed Sovereignty?
For over two decades, Iraqi oil revenues have been deposited in accounts at the US Federal Reserve Bank in New York. What began as a temporary legal mechanism after 2003 has gradually transformed into one of the most significant economic arrangements affecting Iraq’s financial system, its political balances, and its long-term development trajectory. This issue is often discussed from a political perspective, but at its core, it is an economic trade-off between financial stability and economic sovereignty.
Why are Iraq’s oil revenues held in New York?
Following the 2003 US invasion, the UN Security Council passed Resolution 1483, which called for the protection of Iraq’s oil revenues and state assets from judicial seizure by creditors. At the time, Iraq faced massive financial claims stemming from war reparations, unpaid loans, and legal claims related to the Saddam Hussein regime.
To implement this protection, US President George W. Bush issued Executive Order 13303, which granted legal immunity to Iraqi oil revenues and government assets from any legal action. This order was later renewed and amended, notably in 2014, after Iraq settled a significant portion of its historical debts, including those owed to Kuwait.
Economically, this arrangement resulted in oil revenues being managed through protected accounts in New York, preventing creditors from seizing them before they entered the Iraqi budget.
The economic advantages of this arrangement
include protecting revenues from creditors and financial shocks.
When this mechanism was established, Iraq’s debt exceeded $120 billion. Without legal protection, any court in the world could have seized Iraq’s oil revenues.
This system:
• Prevented sovereign default.
• Gave Iraq time to restructure its debt.
• Preserved the state’s ability to pay salaries and fund essential services.
Exchange rate stability and dollar inflows
are crucial. Oil accounts for approximately 90 percent of state revenues, while the Iraqi economy is almost entirely dependent on imports. Having oil revenues deposited in New York ensures a steady flow of dollars into Iraq, which:
• Limits fluctuations in the dinar’s exchange rate.
• Prevents balance of payments crises.
• Provides stable financing for food and medical imports.
From this perspective, the system acts as an external monetary anchor for the Iraqi economy.
Boosting international confidence and attracting investment
under the supervision of the Federal Reserve, oil revenues are less susceptible to corruption or legal disruption, which:
• Encourages global oil companies to invest.
• Reduces insurance costs and legal risks.
• Makes Iraqi oil one of the most attractive oil assets in high-risk environments.
The undisclosed economic cost is
diminished financial sovereignty.
Although Iraq is the legal owner of the funds, access to them is contingent upon ongoing financial oversight and investigations. In practice:
• Iraq cannot freely dispose of its revenues.
• Transfers are subject to external approvals and audits.
• Any political tension could translate into direct financial pressure.
A powerful tool of economic pressure:
Since salaries, imports, and the budget depend on dollars coming from New York, any restriction on access to funds means:
• Rapid economic paralysis.
• Immediate social and political pressure.
This makes financial leverage more powerful than traditional sanctions or a military presence.
Weakening the development of an independent financial system:
Long-term reliance on this mechanism has led to:
• A fragile domestic banking system.
• A delayed development of foreign exchange reserve management.
• Weak domestic monetary policy tools.
In other words, Iraq manages its money but does not have complete freedom to use it.
The connection to the dollar issue and the sanctions on Iraqi banks
reveals a more sensitive economic picture.
In recent years, the United States has tightened its control over dollar transactions in Iraq and imposed sanctions on several Iraqi banks under the pretext of:
money laundering,
dollar smuggling,
and financing sanctioned entities, particularly those linked to Iran.
The fact that oil revenues are held in New York means that:
every dollar entering Iraq is subject to scrutiny;
any local bank is at risk of being cut off from the global financial system;
and Iraqi monetary policy is effectively tied to US compliance.
Economically, this means that:
the dollar crisis in the Iraqi market is not a liquidity crisis, but an access crisis;
the sanctions on banks target not only the banking system but also the behavior of the state as a whole;
and any attempt to circumvent the restrictions leads to further tightening rather than easing them.
Why has this mechanism persisted to this day?
The Iraqi government says this arrangement:
• Protects financial stability.
• Enhances international confidence.
• Supports the exchange rate.
• Limits the influence of informal networks on the dollar.
But the clearer economic reality is that Iraq has chosen:
guaranteed stability over risking complete financial independence.
In summary,
the mechanism for depositing Iraqi oil revenues in New York was a lifeline after 2003, but over time it transformed into a structural constraint. It provides monetary stability and a secure flow of dollars, but in return:
• It restricts financial sovereignty.
• It deepens dependence on oil.
• It makes the Iraqi economy vulnerable to any external decision.
From a purely economic perspective, Iraq is not a bankrupt state, but it is also not a state with full financial sovereignty. As long as oil and dollars remain under external control, stability will persist, but independence will be postponed.
Economic Studies Unit / North America Office,
Rawabetcenter.com