Economic experts have warned against canceling Iraq’s account at the U.S. Federal Reserve and lifting the current protection on the country’s oil revenues without first establishing a strong alternative financial framework. They cautioned that a sudden move could create serious risks for the Iraqi dinar, the exchange market, import financing, and overall financial stability.
Economic expert Mustafa Faraj said that while Iraq could theoretically manage its oil revenues and foreign reserves without American protection, doing so under current conditions would be highly risky. He explained that the issue is not simply about transferring funds from one bank to another but is closely tied to the global dollar-based financial system, correspondent banking networks, international trade settlements, and the Central Bank of Iraq’s ability to manage the currency market.
Faraj noted that Iraq’s financial system is linked not only to the United States but also to the broader global financial network, much of which operates through the U.S. dollar. As a result, any abrupt change could affect the country’s access to international financial services and trade channels.
He suggested that Iraq could gradually diversify its reserve holdings by increasing the share of assets held in euros, gold, and other major international currencies while carefully managing liquidity risks. However, he stressed that completely abandoning the dollar is not a practical solution because most of Iraq’s oil exports and import transactions are still conducted in dollars.
According to Faraj, a more realistic long-term strategy would be to build a diversified international banking network by strengthening relationships with European, Asian, and Gulf financial institutions. This would reduce dependence on any single financial channel while maintaining access to global markets.
He also highlighted the possibility of expanding the use of local currencies and the euro in trade through clearing agreements with countries such as China, Turkey, India, and Gulf states. However, he emphasized that such arrangements require deep financial markets, reliable settlement systems, and currencies that are widely accepted and convertible.
Faraj stressed that the most important step is strengthening Iraq’s domestic banking sector. He said Iraq needs strong, internationally audited banks that comply with anti-money laundering and counter-terrorism financing standards and maintain extensive relationships with correspondent banks worldwide.
He concluded that reducing dependence on American protection may be possible in the future, but it cannot be achieved through a political decision alone. Instead, Iraq must first build a credible and diversified financial system before moving gradually toward greater independence. Otherwise, the greatest risks would fall on the dinar, the exchange market, import financing, and confidence in the banking sector.
Economic expert Ahmed Eid shared similar concerns, warning that removing U.S. protection without establishing an alternative legal and financial framework could expose Iraq to legal disputes and potential attempts to seize Iraqi assets abroad. He noted that previous legal claims or court rulings could create additional risks if protections are removed prematurely.
Eid also pointed to the potential impact on Iraq’s currency and economy. He explained that Iraq relies heavily on oil revenues to finance government spending, and any disruption in the flow of oil income or dollar revenues could place significant pressure on the dinar.
According to Eid, such disruptions could widen the gap between the official and parallel exchange rates, increase the cost of imported goods, fuel inflation, and reduce citizens’ purchasing power. He stressed that maintaining stable financial channels remains essential for preserving economic stability and protecting the value of the national currency.
