Iraqi Prime Minister Mohammed Shia’ al-Sudani is walking a delicate tightrope between asserting the country’s sovereignty and maintaining relations with Iran and its allied militias in Iraq, upon which he depends for political support. Despite immense pressure, al-Sudani managed to preserve Iraqi neutrality in the June 2025 Iran-Israel war and prevent the country’s pro-Tehran militias—operating within the Popular Mobilization Forces (PMF)—from joining the fray. This balancing act arguably marks the beginning of a slow but discernible recalibration of Iraq’s foreign policy as Baghdad seeks to reduce its dependence on Tehran, strengthen its authority over state institutions, and curb the political and financial clout of the PMF.
Iraq’s Iran-aligned militias kept conspicuously quiet during the Iran-Israel confrontation and declined to open a new front on Iraqi soil. Whereas domestic pressures and the costs of escalation may have driven PMF restraint, the militias’ tacit acceptance of Iraq’s neutrality in the confrontation left space for the state to secure its own interests. For Baghdad, the challenge is to see the PMF fade into the background without a showdown that could shatter domestic peace and stability.
This significant shift is occurring under the leadership of Prime Minister al-Sudani, who is backed by the Coordination Framework, a loose-knit coalition of pro-Iranian political parties. Al-Sudani’s cautious but consistent steps signal a potential opening for Iraq to reclaim sovereignty and chart a more independent course. With parliamentary elections in November that could either entrench the current militia-dominated system or open space for nationalist and reformist forces, al-Sudani’s success will determine whether Iraq can finally move beyond being a battleground for regional competition and become a state able to decide its future.
Regional Realignments and Pressures
The June 2025 Israel–Iran confrontation and Israel’s earlier 2023–2024 war in Lebanon have not only shifted the regional order, but have also tested the independence of states like Iraq, long-penetrated by Iranian influence as part of the Islamic Republic’s “forward defense strategy,” which rests on the capabilities of proxy forces that form its “Axis of Resistance.” Iraq has cautiously begun to assert its sovereignty, insulating itself from regional spillover and even rolling back some of the political and economic privileges that militias have accumulated over the last ten years.
One factor widening Iraq’s room for maneuver is the internal strain that Iran is experiencing after Israel’s attacks. Although the Islamic Republic remains resilient, possessing powerful security organs and a proven ability to absorb economic pressure, Tehran is constrained by structural vulnerabilities: deepening sanctions, a stagnant economy, recurring social unrest, and uncertainty over the eventual succession to Supreme Leader Ali Khamenei. These pressures have made Iran more dependent on projecting influence abroad, particularly in Iraq, which offers Tehran an economic lifeline and a strategic lever of influence.
Gulf capitals and Ankara are investing in ways that tie Iraq into regional economic networks.
Regional actors are also recalibrating their approaches. The China-brokered détente of March 2023 has reduced the hostility between Saudi Arabia and Iran, but not erased their competition for influence. Riyadh has accompanied its cautious rapprochement with Tehran with a new push to engage Baghdad directly: Saudi firms are investing in solar energy projects in Najaf and the Saudi Electricity Company is working to connect Iraq to the Gulf grid as an alternative to importing power from Iran. The United Arab Emirates has also moved in Basra to position Emirati firms to benefit from Iraq’s production and consumption of oil and natural gas.
Turkey, too, is expanding its footprint, particularly in northern Iraq. Turkish construction companies already dominate contracts in the reconstruction of Mosul in the wake of the devastation caused during its occupation by the so-called Islamic State, while Ankara’s security cooperation with Baghdad and Erbil continues despite the May 2025 Kurdistan Workers’ Party’s (PKK) decision to disband, focusing on border control, splinter factions and the Sinjar and Makhmour refugee camps. The $17-billion Turkish-Iraqi Development Road project (with backing from Qatar and the United Arab Emirates) envisions a trade corridor linking the port of al-Faw on the Gulf to Turkey and Europe and would transform Iraq into a critical transit hub.
Although Iran still wields enormous influence in Baghdad through militias and political allies, these moves illustrate that Iraq is no longer an uncontested arena. Gulf capitals and Ankara are investing in ways that tie Iraq into regional economic networks, subtly counterbalancing Tehran’s dominance.
Iran’s Influence in Iraq: The Popular Mobilization Forces
While Iran’s military, political, and economic entrenchment in Iraq has evolved over the past two decades, the PMF remains the cornerstone of Tehran’s influence. The PMF is a coalition of Shia militias created in 2014 to fight the so-called Islamic State. In 2016 it was formally incorporated into the Iraqi armed forces under the nominal command of the prime minister. Many PMF factions remained autonomous and received their orders directly from Iran’s Islamic Revolutionary Guard Corps. Among them were Kata’ib Hezbollah (elite, heavily armed, and designated by the United States as a terrorist group), Asa’ib Ahl al-Haq (another US-designated foreign terrorist organization led by Qais al-Khazali, a US specially-designated global terrorist), and the Badr Militia (originally formed in Iran in the 1980s, the largest and oldest pro-Iran group, and heavily represented in Iraq’s Interior Ministry which it uses to channel resources to its patronage base). These groups operate with a degree of autonomy from Baghdad and effectively run their own military structures separate from the Iraqi state. The militias possess not only direct military power, but also coercive influence, as they can intimidate political rivals and manipulate elections. Their ability to direct Iraqi politics has led some analysts to describe the country as effectively an Iranian client state.
Since 2018 Tehran has steered post-election bargaining to secure key positions for its allies in Baghdad, especially in portfolios such as security, energy, finance, national security, and intelligence. It has leveraged mobilization, coercion, and transactional deal-making to tilt governments in its favor—even in the face of popular protest movements like the October 2019 Tishreen movement, which called for accountability and an end to Iraq’s sectarian power-sharing formula that apportions top government jobs and resources by sect.
Economic pursuits give militias political leverage in addition to financial autonomy.
Many of the Iran-backed militias operate much like lucrative business conglomerates, controlling border crossings like Mandali, Shalamcheh, and al-Qa’im, levying customs fees, and skimming revenues. They oversee smuggling networks and dominate the black-market fuel trade. PMF militias are further cementing their economic autonomy by expanding their construction activities via al-Muhandis General Company, a state-owned entity with an initial operating budget of $67 million. These illegal activities provide revenues in addition to the $3.5 billion allocated to the PMF Commission in 2024 by the Iraqi government. This income not only enriches the militias but also provides Tehran with critical channels to circumvent sanctions. Iraq has consequently become a vital source of hard currency for Iran, with billions of dollars flowing through financial institutions aligned with pro-Iranian groups.
Economic pursuits give militias political leverage in addition to financial autonomy. Revenues from border trade, fuel smuggling, and state contracts fund their armed wings, expand their patronage networks, and allow them to contest elections with vast war chests. In effect, militias have blurred the line between coercion and commerce, building parallel economic empires that rival state authority. While this may be a strategic asset for Tehran, the Iraqi state loses billions in revenue annually—an estimated $2.3 billion from border corruption alone. Past attempts at reform have been stymied by deep-seated militia interests.
Elections as a Possible Inflection Point
Iraq’s upcoming parliamentary elections, scheduled for November 11, 2025, could mark an important inflection point in reining in the militias, though the likelihood of genuine change remains uncertain. The Sadrists—a mass, populist movement led by Shia cleric Muqtada al-Sadr, who has challenged Iranian influence in Iraq—retain a strong social base despite their dramatic withdrawal from parliament in 2022, and could reemerge as a formidable electoral force. Parts of the Sadrists’ armed wing, Saraya al-Salam (the “Peace Regiments”) sit within the PMF but answer to Sadr, which routinely generates rivalry with Iran-aligned PMF factions. The Sadrists’ nationalist message resonates with Iraqis tired of foreign domination, especially Iran’s heavy hand. Movements emerging from the 2019 Tishrin protests also retain moral legitimacy, though organizational weakness and persistent targeting by state security forces and PMF militias limit their electoral viability. Nevertheless, they could serve as catalysts for broader reform.
However, Iran-backed factions are unlikely to sit idle. If past elections are any indication, they will likely continue to deploy strategies such as control over state resources, electoral manipulation, intimidation, and media dominance to secure their grip. Nevertheless, these elections present an opportunity for nationalist and reformist actors such as the Sadrists and Tishrin protestors to challenge Tehran’s dominance. The degree to which these movements can coordinate and mobilize will be critical. While the risks of violence, vote-rigging, and post-election instability are high, the stakes are equally significant: a shift in Iraq’s parliamentary balance could begin to erode the political supremacy of the militias and restore some degree of sovereignty to Iraq.
The View from Washington
Even though two decades of instability since the 2003 US-led invasion have diminished America’s appetite for intensive involvement in Iraq, the country retains strategic importance for Washington. Aside from sitting on vast oil reserves critical to the global market, Iraq harbors remnants of the so-called Islamic State (IS) in Diyala, Kirkuk, and the Hamrin mountains. Iraq is a frontline state in the containment of Iran, whose influence inside the country impacts the security of the entire Middle East. While the US maintains roughly 2,500 troops in Iraq (and until April 2025 a further 2,000 in Syria), officially as part of the mission to prevent the re-emergence of IS, their presence has effectively become a buffer against Iran’s expansion. Bases such as Ayn al-Asad in Anbar and Harir near Erbil have been repeatedly targeted by drones and rockets fired by Kata’ib Hezbollah and other PMF factions. Each attack forces Washington to respond firmly enough to deter more serious incidents, but not so forcefully as to destabilize the government in Baghdad.
Al-Sudani has unexpectedly emerged as a partner to support Washington’s efforts. Despite fears of escalation, he was able to maintain the country’s neutrality after Hamas’s October 7, 2023, attack on Israel and prevented Iraq’s Shia militias from supporting Syria’s beleaguered Assad regime before it fell in December 2024. During the June 2025 confrontation between Israel and Iran, US officials watched closely as al-Sudani blocked militia attempts to launch rockets into Israel from Iraqi territory. In June 2025, after Israel and the US bombed Iran, al-Sudani publicly prohibited Iraqi territory and airspace from being used in attacks on neighboring countries and pressured militia-aligned commanders to keep Iraq out of the fighting. The US was reassured that al-Sudani’s moves helped preserve Iraq’s neutrality despite pressure from Iran-aligned factions.
Al-Sudani has unexpectedly emerged as a partner to support Washington’s efforts.
Al-Sudani has also tried to limit the militias’ financial networks. In August 2025, Baghdad disciplined PMF commanders after July clashes with federal police and, under US pressure, delayed salaries amid tighter scrutiny of payment channels, prompting emergency measures to keep disbursements flowing. Baghdad also advanced (and then shelved) legislation to regularize the PMF’s status, slowing militia momentum without publicly announcing budget cuts, underscoring how politically sensitive the issues of militia financing remains. The al-Sudani government has sought to exert greater supervision over previously militia-controlled operations by centralizing border crossings under the direct control of the Finance Ministry and introducing electronic monitoring systems (procured with US and international technical assistance) at customs centers to curb militia skimming. Crossings such as those at Mandali and Shalamcheh are being folded into the Finance Ministry-led ASYCUDA automation and the unified customs tariff applied nationwide in June 2025. Given evidence of fuel diversion by militia-linked companies, Baghdad has also stepped up anti-smuggling enforcement around Basra, including a naval seizure of a Liberia-flagged tanker in August 2025, even as Iraq’s State Oil Marketing Organization (SOMO) has publicly denied allegations of fuel diversion and said official exports remain tracked.
These steps targeting the PMFs’ economic foundations may be modest relative to the scale of state capture by the militias. But al-Sudani’s government seems to understand that sovereignty requires dismantling the financial power that sustains parallel militia authority, not just security measures. For Washington, al-Sudani’s actions suggest his willingness to chip away at the PMF’s economic empire without alienating his political coalition. US diplomats in Baghdad have responded positively to his efforts, including by accelerating energy deals designed to reduce Iraq’s reliance on Iran: In August 2025, for example, the United States facilitated an agreement for Iraq to double its electricity imports from Jordan. Discussions with the GCC, as mentioned earlier, are moving toward a 2026 target for full grid linkage.
The challenge now is how to sustain this cooperation without tipping the balance against al-Sudani, who depends on the Coordination Framework to remain in office. Any perception of being too close to Washington risks a backlash. US policy has been to back al-Sudani’s strategy for sovereignty concretely, yet quietly, through technical assistance, security training for units like the Counter-Terrorism Service (CTS), and coordination with Gulf investors—rather than making high-profile announcements that could undermine his political position.
Iraq at a Crossroads
Iraq’s politics cannot be separated from regional developments and dynamics. While Iran considers the country to be strategically important, the changed balance of power within the region has raised the possibility of the Iraqi state shielding itself from corrosive, foreign influences and reasserting its authority. Today, Iraq stands at a juncture where the combination of regional alignments, Iran’s own internal pressures, and upcoming elections could create openings for reform—or lead to further militia capture. While Tehran’s influence is indeed entrenched, it is not unassailable: Iran’s networks can be eroded if nationalist forces, civil society, and external partners act in concert.
Iraq’s trajectory is especially critical for Washington and its Gulf partners. Its stability shapes global energy markets, regional security, and the balance of power with Iran. Today, no regional power views Iraq as a threat—a significant break with the past. The challenge for the United States is how to mitigate political fatigue with strategic necessity, crafting a strategy for engagement that discreetly empowers Iraqis to reclaim their sovereignty. Iraq’s next chapter will determine whether it remains an arena for proxy competition or emerges as a sovereign state. The outcome of the struggle for Iraq will reverberate across the entire Middle East.
The views expressed in this publication are the author’s own and do not necessarily reflect the position of Arab Center Washington DC, its staff, or its Board of Directors.
Featured image credit: FB/Iraq PMO
