🇮🇶 ANALYSIS: Iraq Is Already Thinking Beyond the Petrodollar System
One of the biggest takeaways from this article isn't that Iraq plans to leave the petrodollar system tomorrow—it's that Iraqi policymakers are openly discussing what would happen if they did.
That alone is significant.
The article acknowledges that Iraq's oil revenues, international trade, and banking system remain deeply integrated into the U.S. dollar-based financial system. It also explains that attempting to break away today could severely disrupt imports, trade financing, and Iraq's connection to the global financial network.
💡 Why is that important?
Because before a country can become financially independent, it must first understand the consequences of leaving the current system.
The fact that senior Iraqi officials are publicly analyzing this issue suggests they are thinking strategically about Iraq's long-term monetary sovereignty—not just its current economic reality.
It also reinforces why Iraq continues pushing banking reforms, international compliance, anti-corruption measures, stronger financial institutions, and modernization of its payment systems. These reforms are not isolated policies; they could be viewed as foundational steps toward giving Iraq greater control over its own economy in the future.
⚠️ The article does not say Iraq is leaving the petrodollar system now.
However, it does indicate that Iraqi leaders recognize that true economic sovereignty ultimately means reducing dependence on external financial control whenever the country is strong enough to do so.
👀 That makes this discussion far more important than a simple article about banking—it offers insight into how Iraq's economic leadership may be thinking about its long-term future.
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THE DOLLAR’S JOURNEY FROM “MANHATTAN” TO “AL-RASHID”: A READING INTO THE SECRETS OF MONETARY DEPENDENCE AND THE FUTURE OF “IRAQ 2”
Iraq is a major economic paradox; while it sits atop the world’s fourth-largest oil reserves, it finds itself shackled by a series of monetary crises that raise a pressing sovereign question: Why are our wealth deposited in the US Federal Reserve Bank of New York instead of our national treasuries? And why does every Iraqi dollar pass through US scrutiny before finding its way to Baghdad?
In this analytical reading, we delve into the profound facts presented by Dr. Mazhar Muhammad Saleh, the financial advisor to the Prime Minister and the foremost authority on Iraqi monetary policies, to reveal how the “American treasury” is managed, and what are the costs of “systemic waste” that devour the development budget.
First: “Iraq 2” – New York as a bank for global operations
The journey toward monetary dependency began with UN Security Council Resolution 1483 in May 2003, which established the Development Fund for Iraq (DFI). The choice of the New York branch of the Federal Reserve was not only political, but also because it serves as the “International Operations Bank,” managing international liquidity. Today, this fund has legally been transformed into the “Iraq 2” account.
For many years, this account served as a source for paying the $52.4 billion in Kuwait war reparations, which officially ended in 2021, but it remained a crucial financial buffer. Here, a technical distinction must be made between two types of accounts: the “Oil Receipts Account,” into which export revenues are deposited, and the Central Bank’s “Foreign Reserves Account,” where “monetary sterilization” operations are carried out by absorbing Iraqi dinars and injecting dollars to finance trade.
“The US Presidential Executive Order (EO 13303) provides unique legal immunity for Iraqi funds against any legal action or seizures by international and private creditors. It is an international umbrella of protection that ensures the continuity of cash flows, but in essence it entrenches a monetary dependency that makes the US Federal Reserve the primary overseer of liquidity.”
Second: The “petrodollar” trap and compliance with the “SWIFT” system
Iraq technically belongs to the “dollar zone,” and is part of the “petrodollar” system that serves the American financial empire. The decision to price oil in dollars is not merely a technical choice; it is a cornerstone of stabilizing global demand for the greenback.
The idea of a “monetary rebellion” or breaking free from the dollar’s dominance clashes with the reality of “institutional compliance.” The financial world today is governed by the SWIFT system and transparency rules, and any attempt to circumvent the dollar would mean isolation from financing imports, which are vital to the daily lives of Iraqi citizens.
Third: “The Cost of Iraq” and Systemic Corruption
Dr. Mazhar revealed a shocking concept known as the “Cost of Iraq,” an undeclared tax that consumes between 40% and 45% of the value of any project implemented in the country. This waste is not merely individual theft, but rather “systemic corruption” where poor planning combines with extortion and exorbitant insurance costs.
• Feasibility crisis: A startling fact indicates that 90% of projects in Iraq lack genuine economic or technical feasibility studies, turning the investment budget into “wasteful economics”.
• Waste as an alternative to corruption: Dr. Mazhar believes that “waste economics” is the most dangerous face of corruption, where the efficiency of institutions declines and the costs of stalled projects multiply due to conflicting decisions.
“We are not just fighting bribery; we are facing a system of waste resulting from the low efficiency of institutions. Transforming the economy from a ‘waste economy’ to an ‘efficiency economy’ is the real battle to restore the state.”
Fourth: The battle over “white markets” and the restructuring of banks
The Iraqi banking sector recently witnessed the suspension of 28 banks from dealing in US dollars. It is important to distinguish between these banks and those sanctioned by OFAC for financial crimes; rather, they were suspended due to institutional non-compliance with international money transfer standards.
Today, the global firm Oliver Wyman is leading a reform plan to ensure “international compliance,” which includes:
1. Mergers: Creating robust, competitive banking entities instead of “front” banks.
2. Capital adequacy: Raising the minimum capital requirement for banks to 400 billion Iraqi dinars as a condition for survival.
3. Strategic Partner: Connecting local banks with international correspondents to ensure transparency and a complete transition from the “grey market” to the “white market”.
Fifth: “Economic Geography” and the Challenge of the Strait of Hormuz
For years, Iraq has been held captive by geopolitics, but the new vision prioritizes geoeconomics. Tensions in the Strait of Hormuz have exposed the fragility of relying on a single waterway; direct oil losses (loss of volume, not price) are estimated at around $39 billion since last February, while macroeconomic losses reach $45 billion, according to Dr. Mazhar’s “non-orthodox estimates.”
The lost “opportunity cost” of relying on a threatened waterway for exports makes diversifying export routes (such as the Banias pipeline and the Turkish pipeline) an existential necessity, not merely a strategic option. The “collapse in volumes” that Iraq is currently facing is more dangerous than the collapse in prices because it strikes at the very heart of the state’s financial capacity.
Summary:
Trust as a “tangible asset” that generates wealth
The crisis in Iraq is not a lack of resources, but rather a deep “trust gap.” As Dr. Mazhar describes it, “trust is an intangible asset”; if it is present and the working environment is improved, it immediately transforms into tangible assets and productive wealth.
The institutional reforms Iraq is currently undertaking, from the Higher Investment Council to the program and performance budget, are an attempt to curb systemic corruption. But the question remains: Will Iraq succeed in transforming trust into a national currency stronger than the dollar that resides in Manhattan, New York? It is a battle to restore the state’s efficiency, a battle in which Iraq will not accept compromise.