Washington’s continued oversight of Iraq’s oil revenue is a direct result of policies set in motion after the 2003 invasion. The system, managed through the Federal Reserve Bank of New York, gives the United States significant economic influence over a country whose budget depends on oil for roughly ninety percent of its spending.
Origins of the New York Fed Account
Following the 2003 invasion, the Coalition Provisional Authority created the Development Fund for Iraq (DFI). The fund was placed at the New York Fed to collect oil proceeds for reconstruction, protect the money from lawsuits tied to Saddam Hussein’s regime, and provide a transparent channel for U.S. dollars needed for trade.
An executive order signed by then‑President George W. Bush established the arrangement, and every president since—including President Trump—has renewed it. Today the DFI operates as an account of the Central Bank of Iraq held at the New York Federal Reserve.
Leverage for the United States
Because oil accounts for about ninety percent of Iraq’s state budget, control of those dollars translates into substantial leverage for Washington. When Baghdad asked U.S. troops to leave in 2020, officials say the United States threatened to cut access to the New York Fed funds, prompting Iraq to back down.
The Trump administration has used that leverage as part of its maximum‑pressure campaign against Iran. By maintaining a firm grip on Iraqi oil dollars, the administration can limit the flow of funds to Iran‑aligned groups and enforce sanctions on banks and individuals accused of laundering money for Tehran.
Why the Arrangement Persists
Officials familiar with the system, speaking on condition of anonymity, argue that the New York Fed account anchors Iraq’s financial stability. It bolsters international confidence, eases access to U.S. dollars for essential imports, and shields revenues from external claims and financial shocks.
The structure also supports exchange‑rate stability and underpins confidence in the Iraqi economy, while helping to strengthen domestic financial institutions. In the eyes of U.S. policymakers, this arrangement enables Baghdad to push back against actors—particularly Iran‑aligned groups—who seek fewer restrictions on dollar access.
Impact on Iraq’s Economy
The tight control of dollar supplies has spurred a parallel informal market for U.S. currency, creating a spread between the official exchange rate and the black‑market rate. That spread reflects a risk premium for transactions outside the formal system.
President Trump’s administration has intensified pressure on Iran, and the war launched with Israel on February 28 added further strain on Baghdad. Yet the continued presence of the New York Fed account ensures that Iraq can still obtain the dollars needed for trade, even as it works toward greater economic sovereignty.
Recent Changes and Future Outlook
In early 2025, Iraq formally ended the dollar‑auction mechanism that private banks used to bid for U.S. dollars with Iraqi dinars. The move came after significant U.S. pressure aimed at curbing alleged siphoning of dollars to sanctioned parties, especially Iran.
As U.S. troops complete their final withdrawal from Iraq, the Trump administration’s focus remains on safeguarding American strategic interests in the region while supporting a stable Iraqi economy. The New York Fed account is likely to remain a cornerstone of that strategy, providing Washington with a tool to influence Baghdad’s fiscal decisions and counter Iranian influence.
Overall, the arrangement illustrates how a well‑designed financial framework can protect a nation’s revenue, promote stability, and give the United States a constructive role in a volatile region.
Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.
