BAGHDAD — The oil terminals outside Basra are still running. Armed factions that successive Iraqi governments have failed to bring under state control are still operating. And the government in Baghdad is still borrowing money to cover operating costs when oil revenue falls short.
For two decades, Iraqi political leaders have managed these structural problems through delay, factional negotiation, and periodic crisis response. That approach has held the country together. It has not fixed anything. And the conditions that made it sustainable are now under pressure from several directions at once.
Iraq’s treasury depends almost entirely on crude oil exports through a single southern corridor. The government cannot fully enforce its authority over armed groups that hold both military capacity and parliamentary representation. Summer temperatures in the south now regularly reach levels that make outdoor work dangerous, exposing how little the country’s power and water infrastructure can absorb. None of these problems is new. The question being asked with more urgency in Baghdad and among regional governments is how much longer the current arrangement can hold.
The authority problem has a structural explanation
Iraq’s post-2003 political system was designed to prevent any single faction from monopolizing state power. It accomplished that. It also produced a government that distributes military authority among groups whose loyalties do not always align with Baghdad’s.
Factions holding armed units outside the formal chain of command have used Iraqi territory to strike targets in neighboring countries on several documented occasions. Iraq absorbs the diplomatic consequences. Neighboring governments that might otherwise pursue closer economic ties instead maintain a guarded posture toward Baghdad. Companies weighing long-term investment in the country look at who else operates there and, frequently, decide against it.
The deeper constraint is political. The factions controlling armed capacity outside state command also hold seats in parliament and positions in the cabinet. Any serious effort to change that arrangement requires a confrontation the government would need to win completely. No Iraqi administration since 2003 has had both the political conditions and the will to attempt it at the same time. A regional security assessment circulated among Gulf officials in 2024, the contents of which were described to journalists by officials who reviewed it, warned that Baghdad’s ability to enforce agreements it signs remains an open question. The assessment has not been made public and its author has not been identified.
Revenue from one source, risk from every direction
Iraq collects the large majority of its government revenue from crude oil moved through export terminals near Basra. When that route faces disruption, from price movement, regional shipping problems, or political friction, the government’s cash position falls fast.The consistent response has been borrowing. Domestic credit when available, external financing when necessary, aimed at covering salaries, fuel subsidies, and the minimum services needed to prevent civic breakdown. The borrowing does not build anything. It does not reduce exposure to the next revenue gap.
Corruption compounds the problem in ways that are visible to ordinary Iraqis in their daily lives. Public money that should fund water treatment or reliable electricity has moved instead through patronage networks serving the people who control them. In the southern governorates, where temperatures now regularly exceed 50 degrees Celsius during summer months, power cuts of four to eight hours a day are not exceptions. They are the routine.Water scarcity in those same areas has worsened steadily. The gap between what the state collects and what actually reaches the public is not a policy debate in Basra or Nasiriyah. It is a daily calculation.
Gulf states have signaled interest, with conditions
Something has changed in how regional governments discuss Iraq.Countries that spent years treating Baghdad primarily as a security concern have begun talking about economic engagement. The Development Road project, a proposed freight corridor linking Basra to the Turkish border and potentially offering an overland alternative to Gulf shipping routes, has drawn expressions of interest from Qatar, the UAE, and Saudi Arabia. Iraqi government officials described those discussions to regional media outlets during 2024 and in the early months of 2025.
The interest is conditional. Regional partners want evidence that the Iraqi government can control cross-border security incidents and can honor agreements it signs. In practice, that means visible state authority over the factions that have caused those incidents. It means confidence that a deal made with Baghdad will not be undermined by a group Baghdad does not actually control.Those conditions are precisely what Iraq needs to demonstrate for its own reasons. The alignment of external incentives with internal necessity is not something that appears often.
The window is not open indefinitely. A significant cross-border incident tied to armed groups operating from Iraqi soil, particularly one that draws a direct military response from a regional power, would likely end the investment conversation for years. Iraqi officials have said in public statements that they are aware of this exposure. What they have not done is demonstrate the state authority that would reduce it.
Where things stand
Iraq’s government is functional. Elections happen. Oil revenue arrives. The state provides services, unevenly and insufficiently, but it provides them.What it has not done in two decades is resolve the authority problem, build a second source of government revenue, or deliver infrastructure that works reliably in extreme heat. Those failures compound each other. A government that cannot fully control its territory cannot credibly commit to the security guarantees that regional investment requires. A government running on oil revenue with no backup cannot absorb the shocks that come from depending on one commodity and one route.
Iraqi political leaders and factional representatives face mounting pressure from citizens who have watched services deteriorate and from regional partners who want assurances before committing capital. Whether that pressure is enough to produce different decisions than the ones made over the past twenty years is the question the next several years will answer.The Development Road negotiations are continuing.