Iraq protests loom as salary delays worsen amid oil crisis, dollar access issues

Iraq is grappling with a potential escalation of protests as the government struggles to pay state employees their July salaries. The delays stem from an oil export crisis exacerbated by Iran's blockade of the Strait of Hormuz and complications in accessing U.S. dollars, according to Dr. Ronen Zeidel, a researcher at the Moshe Dayan Center.

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When you don’t export your oil, and oil is the main product of the Iraqi economy, you don’t have money.

Iraq's economy is critically dependent on oil, which constitutes 90% of government revenue and over half of its GDP. The inability to export oil directly impacts the nation's financial capacity. Zeidel explained that the United States' control over Iraqi oil revenues, held in New York through the Development Fund for Iraq, creates a complex situation. Washington uses this financial leverage to influence Baghdad's regulatory systems and its relationship with Iran.

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The problem is that dollars are often not released, or are not released at the pace that Iraq needs. The Iraqi banking system and financial system are not operating according to American regulations, and there are significant problems with the banking sector.

The core of the problem lies in the restricted flow of U.S. dollars. Zeidel noted that Iraq's banking system does not fully comply with American regulations, leading to significant hurdles in accessing the necessary funds. The U.S. aims to prevent Iraq from being used for dollar laundering and transfers to Iran, targeting banks involved with Iran and Iraqi militias. Until Iraq implements the required banking reforms, accessing dollars will remain difficult, jeopardizing essential payments to state employees.

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The Americans have been working to reform this banking system over the past couple of years, but that work has not yet been completed. Iraq has been used for laundering dollars and transferring them to Iran. Some banks are on the American blacklist for working with Iran and with Iraqi militias, and that is what the Americans want to prevent.

With approximately 17.5% of the Iraqi population already living in poverty, according to the Multidimensional Poverty Index, withholding wages could further destabilize the country. The Ziyarat al-Arbaeen Shia pilgrimage has so far tempered the impact of smaller protests, but continued salary delays could ignite more widespread and potentially violent unrest.

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As long as Iraq does not carry out the necessary reforms, there will continue to be difficulties in accessing dollars. When you do not have dollars, you cannot pay all of the state employees who rely on these payments.