ByDANIELLE GREYMAN-KENNARD

AUGUST 6, 2026 16:32

Updated: AUGUST 6, 2026 16:41

Small-scale demonstrations have emerged in Iraq following Baghdad's failure to issue July wages to government staff. These actions remain contained so far due to attention on the Ziyarat al-Arbaeen Shia pilgrimage, yet they could grow forceful if the payment issues persist, Dr. Ronen Zeidel told The Jerusalem Post on Thursday.

Iraq allocates roughly $6.5 billion each month for public sector wages, pensions, and social support, per the nation's Finance Ministry. The holdups reportedly stem from Baghdad's challenges in handling the oil export disruptions that followed Iran's blockade of the Strait of Hormuz.

Iraq's Multidimensional Poverty Index shows about 17.5 percent of residents in poverty, a share that may rise naturally if wages stay withheld for extended periods.

The Iraqi economy depends heavily on oil, which provides 90 percent of state income, 95 percent of export revenue, and over 53 percent of gross domestic product.

"Without oil exports, and given that oil drives the core of the Iraqi economy, funds run short," Zeidel, a researcher at the Moshe Dayan Center, noted, while pointing out that US restrictions on fund releases add further hurdles for Baghdad.

"Dollars often face delays or come at a slower rate than Iraq requires. The Iraqi banking and financial systems do not align with American rules, leading to major sector challenges," he said.

US oversight of Iraqi oil income allows leverage for policy shifts in Baghdad

The United States manages revenues from Iraqi oil fields via the Development Fund for Iraq held in New York, giving Washington tools to influence regulatory updates or ties with Iran.

"Americans have pushed banking reforms for several years, yet completion remains pending. Iraq has served as a channel for dollar laundering and transfers to Iran. Certain banks appear on US blacklists for dealings with Iran and Iraqi militias, which Washington seeks to block," Zeidel added. "Until Iraq completes needed reforms, dollar access will stay limited. Without dollars, payments to state workers who depend on them cannot proceed."

Extended payment delays could lead to larger protests that turn more "violent," he warned.

Comparing the situation to December protests in Iran that began over economic woes and shifted to regime opposition, Zeidel highlighted several "converging issues" linked to geopolitics that might intensify unrest.

Portraying Iraq as caught between Iran and the US like a child of divorced parents, he noted dependencies on US financial aid and Iranian gas leave Baghdad balancing key relationships.

With temperatures nearing an "unbearable" 50 degrees Celsius in Iraq this week, Iranian gas remains vital for power. Tehran provides between a third and 40 percent of Iraq's gas and electricity, though flows have faced repeated pauses and outages are frequent.

"America acts as the father figure. Under Trump, America has chosen to support Iraq. Iran now resents the Iraqis for turning to America, as US firms enter the economy. This may boost Iraqi growth via American company involvement, new jobs, and related steps," he said.

"Yet Iran retains the ability to affect Iraqi politics and the nation itself, and Iraqis recognize this. Iran holds ongoing influence over Iraq."

Oil pacts with US firms worth $200 billion concluded during prime minister's July US trip

Iraq's oil minister stated in a state television interview last month that deals reached between the oil ministry and US companies during Prime Minister Ali al-Zaidi's July US visit total around $200 billion.

Zeidel observed that Baghdad gained no exemptions for Iraqi oil tankers during Zaidi's Tehran visit last month, nor an expanded gas supply agreement, though several joint pacts on foreign affairs, finance, economy, and energy were signed. Iraq had secured a five-year gas deal with Iran in March for up to 50 million cubic meters daily, but has traded crude oil and fuel instead since US rules block sanctioned fund releases.

Zeidel also mentioned Arab media reports claiming Iran sought about $11 billion in back payments for gas imports during Zaidi's recent Tehran trip.

Al Hurra noted Baghdad proposed sending $1 billion to Saudi Arabia for Hajj fees owed by Iran to ease ties with Washington, though this offer was reportedly declined.

"Iran opposes the scale of American economic involvement in Iraq," Zeidel said.