Jasim Al-Azzawi
Iraq enters 2025 facing the same unsparing question that has haunted it for two decades: can it remain a partner to Washington while sustaining the political and economic lifelines that tie it to Tehran? With Donald Trump back in the White House and reviving his “maximum pressure” doctrine, the space for maneuver is collapsing. Baghdad is discovering that neutrality is becoming a luxury.
“Iraq’s second Trump presidency promises another four-year tightrope walk,” one regional analyst observed. The stakes are grimly simple: preserve the American security umbrella and risk rupturing ties with Iran, or inch closer to Tehran and trigger punitive US measures that could crack the foundations of Iraq’s economy.
Former US Ambassador to Iraq James Jeffrey, who also served as the Syria envoy, is blunt about Washington’s calculus: Whatever path the administration chooses, he argues, the overriding objective is to secure America’s strategic interests in a country with an educated population and oil exports nearing four million barrels per day—”far more than a geopolitical battleground.”
Economic pressure as the lever
The US government has made it clear that the real battlefield is financial. In October 2025, the US Treasury Department placed sanctions on several Iraq-based individuals and companies accused of helping Iran evade US sanctions, funnel weapons, and launder money through Iraq’s banking system. The designations have targeted key bankers and business networks tied to militia enterprises operating with Tehran’s blessing.
Those measures were built on earlier moves. In September, the State Department designated four Iranian-aligned militias as Foreign Terrorist Organizations—Harakat Hezbollah al Nujaba, Kataib Sayyid al Shuhada, Harakat Ansar Allah al Awfiya, and Kataib al Imam Ali, effectively cutting them off from the international financial system. And in March, Washington terminated the longstanding waiver that allowed Iraq to buy Iranian electricity and gas despite US sanctions, threatening to plunge the country into rolling blackouts.
Some in Congress have pushed for even harsher blows. In May, representatives advanced a plan to sanction Iraq itself, as part of the campaign against Iran. The far-reaching plan would have hit the Popular Mobilisation Forces, parts of Iraq’s oil and banking sectors, and senior officials. Critics labeled it “a decapitation attack on Iraq’s economy and sovereignty.”
Diplomacy under pressure
Secretary of State Marco Rubio has paired the financial campaign with sustained diplomatic pressure on Prime Minister Mohammed Shia al-Sudani. In calls in February and October 2025, Rubio underscored the requirement for disarming Iranian-backed militias and shrinking the influence of Tehran. The message is consistent: Iraq must choose.
But Sudani governs a country where the choice is not only unwelcome—it is dangerous. He has criticised unilateral foreign military operations by Israel, Iran, Turkey, and the United States, adopting what the Congressional Research Service calls a nationalist posture. He also declared that attacks by Iran-aligned groups are illegal. Yet the militias remain armed, entrenched, and politically indispensable.
The militia state within the state
The main instrument of Iranian influence, the Popular Mobilization Forces, is more than a constellation of armed factions; it is a parallel establishment with its own parties, revenue streams, and administrative organs. Tehran is now supporting legislation that would cement the PMF’s autonomy, granting the organization financial independence and barring future attempts to disarm it without a parliamentary vote.
For Washington, these militias represent the embodiment of Iranian control. For Tehran, they constitute the linchpin of a regional strategy that extends from Baghdad to Beirut. To subordinate them to the authority of Baghdad carries the very real prospect of a confrontation that neither Sudani nor his likely successors can easily survive.
The question of US troops
In July 2025, the US and Iraq agreed to a staggered pullout of American combat forces from central and western Iraq by December. However, the counterterrorism and training missions would go on in Kurdistan. Defense analysts expect all troops to be out by late 2026, though the definition of “combat forces” remains elastic—and the US presence in Kurdistan could be reclassified and extended.
The timetable creates a strategic countdown. A complete American withdrawal would remove the pressure on Iran’s proxies. A residual presence would safeguard Washington’s leverage. Both Tehran and Washington are maneuvering to shape the terms of the drawdown.
Elections and the politics of survival
The orderly and secure parliamentary elections in November 2025, welcomed by Washington, saw strong results for the Sudani coalition in the south. US special envoy Mark Savaya hailed the vote, reiterating American support for curbing foreign interference and the disarmament of militias.
Yet Sudani’s margin fell short of the decisive mandate analysts believe he needed to secure a second term. Coalition arithmetic in Iraq is unforgiving, and nearly every large bloc maintains ties to Iran. Trump’s hard line on Tehran will complicate coalition talks and may push factions to hedge further.
Politicians in Baghdad speak about sovereignty, yet quietly balance their foreign patrons. It is a survival skill that was honed over years of occupation, insurgency, and geopolitical tug-of-war.
The road ahead
Which way Iraq now goes depends on whether its next government can fend off American pressure without antagonizing Tehran and also on whether the militias, so deeply entrenched in the state, tolerate any shift toward reining in their independence. Ordinary Iraqis, worn down by decades of war and foreign control, may well rise to insist on a change of direction. But their political elite is stuck in a system that makes power a function of placating outside powers.
A reminder from Jeffrey that Iraq “matters deeply” to Washington suggests the United States will not walk away. Iran, for its part, views Iraq as the crown jewel of its regional strategy. The result is a grinding contest likely to produce more crises than breakthroughs.
Iraq is not drifting toward a dramatic realignment. Its future is being carved in small, contested increments shaped by competing pressures, fragile institutions, and leaders trying to preserve both their authority and their country’s sovereignty. The tightrope walk continues.
