Iraq Today: A State Under Stress

Institutional Fragility and Governance Failure

Recent media interviews and statements underscore what many observers long suspected: Iraq remains deeply misgoverned. For example, Abdullah al-Dardi, Assistant Secretary‑General of the UN, is reported to have described Iraq as “administratively failed,” noting that despite having two great rivers, the country “suffers thirst,” while being awash in oil revenues and yet forced to import electricity. One striking claim is that Iraq employs eight million people in its public sector, contrasted with only 2.5 million in a state the size of the U.S.—a signal of bloated bureaucracy and patronage.

Taken at face value, such assessments capture a core contradiction: Iraq is still, in effect, “floating on oil” (i.e. dependent on hydrocarbon revenues) while offering minimal public services, low institutional capacity, endemic corruption, and little ability to respond to shocks.

Economic Outlook: A Precarious Dependence

The macroeconomic data reveal the depth of Iraq’s structural dependency on oil and its risks:

In 2025, the IMF’s Article IV consultation flagged that while Iraq has maintained nominal stability, its non-oil economy slowed sharply (growth in non-oil GDP dropped from ~13.8 % in 2023 to about 2.5 % in 2024).   The IMF also warned that without urgent reforms — raising non-oil revenues, curbing the wage bill, reprioritizing capital spending — fiscal and external accounts will deteriorate further.   Concurrently, falling oil prices as of mid‑2025 are further sapping revenues and tightening financing constraints.   According to analyses by Coface, Iraq’s fiscal position is under growing pressure: oil revenues made up 91 % of the federal budget in early 2025, and public debt is projected to rise above 55 % of GDP by end‑2026, reversing earlier consolidation gains.   The domestic debt burden is already at record levels. Analysts estimate that Iraq’s domestic debt exceeded 90 trillion dinars in 2025, with debt servicing costs crowding out productive investment and starving private-sector credit.   Yet, ironically, early reports in 2025 suggest Iraq ran a fiscal surplus (~USD 4.5 billion) in the first half, largely driven by elevated oil exports.   This surplus, however, is fragile: it depends heavily on oil price volatility and may not redress the long-term structural malaise.

In short, Iraq is caught between two contradictory imperatives: high recurrent spending (especially salaries and pensions) which it cannot sustain under depressed oil revenues, and the urgent need for structural reform — which it lacks both the political will and institutional capacity to execute.

Political Landscape: The Reemergence of Old Forces

A- The Shadow of Baathism

One often-overlooked dimension of Iraq’s post-2003 landscape is the persistence of residual Baath networks. After the U.S.-led invasion, the Baath Party was formally banned and key members purged under a policy of “de-Baathification.”  The 2008 Accountability and Justice Act modified de-Baathification by restoring some pensions and allowing low-level Baathists to be re-employed.

Though the Baath Party is formally outlawed, fragmentation and clandestine reorganization mean that former Baathists sometimes operate under new banners, infiltrate institutions, or exert influence via proxy parties. Some analysts argue that, particularly in Sunni-majority areas, Baathist networks remain a subterranean force. (Though solid public evidence is limited, the narrative of Baath resurgence retains symbolic resonance.)

In the current 329‑seat Iraqi parliament, explicit Baathist representation is rare (given legal bans). Nevertheless, in practice:

Co-optation of technocrats: Many former Baath-affiliated civil servants or technocrats were gradually reintegrated into ministries or agencies under new party labels or independent status, but still retain old networks of patronage and patron-client loyalty.

Proxy alignments: Some Sunni or nationalist parties may quietly accommodate or affiliate with Baathist values or personnel—less in the open but more behind the scenes. Accusatory politics: The label “Baathist” itself is sometimes weaponized—with opponents accusing others of Baath sympathies as a rhetorical strategy, which keeps the idea alive in political discourse.

Hence, even if the Baath Party does not openly field its own lists, its ethos, symbols, and networks continue to color Iraqi politics. This residual influence helps explain why “old guard” approaches to power (strong state control, clientelism, patronage, security dominance) still dominate political culture.

B- The Dominance of Military ( ) -Linked Politics

If Baathist influence is covert, the influence of Iraq’s military factions —especially those tied to the Popular Mobilization Forces (PMF) and aligned with Iran—has become overt and institutionalized. The creation of the Muhandis General Company is perhaps the clearest emblem of this dynamic.

The Muhandis Company, inaugurated in late is a wide-ranging conglomerate with mandates spanning construction, agriculture, industrial contracting, real estate, and more.   Its charter and operating privileges are exceptional: it receives preferential treatment in government tenders, is exempted (or largely so) from normal collateral or audit requirements, and is shielded from standard oversight.   The company also has been granted vast parcels of land (in al‑Muthanna and elsewhere) on terms that defy standard legal process, as well as a capital endowment mostly in-kind (90 % government asset transfers, 10 % cash)   The parallel (and implicit) ambition is to create an Iraqi analog of Iran’s Khatam al-Anbia—the IRGC construction conglomerate that itself is deeply enmeshed in Iran’s political and economic control apparatus.   In March 2024, the Muhandis Company signed a memorandum of understanding with China’s CMEC to collaborate across multiple sectors (construction, energy, trade).

In effect, military faction-linked are no longer external to the state—they are embedding themselves inside it and transforming its economic structure from within.

Some believe that his dynamic sidelines traditional parties, weakens state institutions, and preempts genuine accountability. In parliamentary terms, these military-aligned blocs (e.g. Fatah bloc, Badr Organization, Asa’ib Ahl al-Haq affiliates) maintain outsized influence, thus constraining reformist or secular governments.

The Sanctions on Muhandis: Legal Faust or Covert Sanctioning?

The Rationale and Legal Basis

In October 2025, the Treasury’s Office of Foreign Assets Control (OFAC) added Muhandis General Company (and its affiliate Baladna) to the Specially Designated Nationals (SDN) list under Executive Order 13224 (counterterrorism sanctions).  The stated grounds:

Muhandis “materially assisted, sponsored, or provided financial, material, or technical support or goods or services in support of Kata’ib Hezbollah and the IRGC‑Qods Force.”   It is controlled or directed by Kata’ib Hezbollah, a U.S.-designated foreign terrorist organization.   The Treasury claims Muhandis diverts government contracts to contractors in exchange for illicit revenue.   Baladna, as an affiliate, is designated for being a front facilitating weapons smuggling or funds in support of Muhandis and IRGC proxies.

Proponents of the sanctions argue that embedding a militia-run firm inside the Iraqi state is a malign strategy to entrench Iran-backed influence, erode sovereignty, bypass oversight, and cultivate illicit revenue streams.

From a legal standpoint, the U.S. acts under its domestic authority (EO 13224) rather than any multilateral vote. That means the measures depend on U.S. unilateral declarations of “support for terrorism.” Whether that is binding on Iraq’s sovereignty is a separate question.