Iraq for a range of reasons cannot internally produce power and relies for much of its electricity on imports, particularly from such neighbors as Iran, but the US financial pressures disrupt supply process. Actually, due to the full US control over its financial arteries, Baghdad is caught between a desperate need for financial interactions with Tehran and committing to the unilateral Washington sanctions on the Islamic Republic of Iran.
In recent days, this issue has once again drawn criticism from some of the political factions in the parliament and cabinet who have demanded Iraq's financial independence from direct foreign control.
Hadi al-Amiri, the head of Fatah coalition in the parliament, has strongly criticized the dependence on the US, saying that it is “shameful” that an American staffer in the Department of Treasury holds Iraq's financial control. Pointing to the US interference and obstructions in Iraqi gas bill payments to Iran, al-Amiri said that the Americans have warned Iraq that if they pay Iran's debt in cash, they will be sanctioned.
Last month, al-Amiri had commented on the dollar crisis in Iraq that is caused by the US interference, saying that since the dollar reserves of the central bank of Iraq are deposited in an account in the Federal Reserve, Iraq has no financial independence.
“Everyone knows very well how the Americans weaponize the dollar to impoverish the nations,” al-Ameri held.
Ali al-Fatlawi, another Fatah leader, held the US accountable for the rise in the dollar price in the Iraqi FX market.
The protest of these political figures against Washington's control over Iraq's financial and monetary system comes as a demonstration was held in Baghdad's Green Zone in front of the American embassy late last week, during which the demonstrators demanded end of the American political interference via its ambassador in Iraq.
Fed’s mechanism for controlling Iraqi oil revenues
After the US occupation of Iraq in 2003, the occupying power sought to establish a political system in Iraq in such a way that it could structurally guarantee its influence in the future. One of the most important factors serving this agenda is the Iraqi economic system. Through the role of Federal Reserve Bank, the US is controlling the revenues from the sale of Iraqi oil, the exchange rate of the dinar, and other mechanisms that enable Washington to control the Iraqi economy.
The excuse for this financial dominance over Iraq was establishment of a mechanism for the Fed to compensate countries having taken damage over decades from the former Iraqi dictator Saddam Hussein’s policies. To this end, according to the United Nations Security Council resolution 1483, Iraq's Development Fund was founded and an account for depositing oil money was opened in the Fed in New York. The account was granted international immunity to avoid financial confiscations as a result of international court rulings for compensations deriving from legal actions against the former regime.
Since then, all of the Iraqi oil revenues, after subtraction of 5 percent in war reparation payment to Kuwait that by the way ended last year, have been deposited in the Fed.
For spending from this account, requests are sent to the US to explain where this money is paid, and if approved, the sum is transferred to Iraq's central bank. This process takes up to 20 days.
The money is air-transferred to Iraq and each time half a billion dollar is sent to Baghdad. Meanwhile, the costs of transfer, security, and insurance are paid by Iraqi central bank.
Though according to the 2010 security pact, the US occupation of Iraq formally ended under Prime Minister Nouri al-Maliki and according to the resolution 1956 Iraq Development Fund was dissolved, the Fed practically maintained its control over Iraq's central bank.
Iraq's financial cycle works as follows:
1. Oil revenues are deposited in the Fed
2. Money is transferred to Iraq after Fed ratification
3. Dollar is sold in foreign currency auctions
4. Dollar is bought by the businesspeople, FX exchange houses, and state institutions.
While this financial structure has been a source of big troubles for Iraq and many experts argue that FX fluctuations, inflation, and black FX market— despite a big jump in oil sales and revenues last year— derive from the US control over Iraq's oil revenues, deposit of oil incomes has several advantages to the US:
1. Deposit of huge money in the Fed enlarges its power
2. The US can offer loans to third parties from this money without paying interests to Iraq
3. Iraq is charged for money transfers and the related American companies benefit from this.
4. During transfers, Iraqi government should provide insurance against theft, fire, and other incidents and all this costs it sums.
5. Control over exclusively dollar-paid oil sales essentially means control over the whole Iraqi economy and this enables US pressures on Iraqi government.
For example, the payment bids to the Fed are only at the request of the Iraqi government represented by the ministry of finance, which is done by mentioning the exact details of the destination of payment of those funds, and this means that the US controls the sources of exchange inside Iraq. This mechanism is what restricted various Iraqi governments’ efforts to provide power from Iran.
Iraq is a major trade partner to Iran, with their trade volume reaching $9 billion annually. But the US control over Iraq's payments blocks money transfers to Iran for services provided and goods imported.
On the other hand, the control of Iraq's financial system provides the US with a pressure lever to monitor Iraq's foreign partnerships in order to prevent this country from moving towards extensive cooperation with the US competitors like China, which is developing its influence and presence in West Asia and the Persian Gulf. This issue blocks Baghdad from taking advantage of economic opportunities, especially participation in China's Belt and Road Initiative.
This situation provokes a public demand for end of the US
dominance over the country’s oil incomes. In fact, one of the main
factors of sovereignty and independence is independence of the central
bank, and Iraq as a country with a population of over 43 million with
historical records and prominent regional position should enjoy
sovereign independence.
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