Iraqi Prime Minister Ali Zaidi’s decision to make the U.S. his first foreign destination after taking office has served as a significant indicator of the future direction of Iraq-U.S. relations. The messages delivered by Zaidi and U.S. President Donald Trump on July 14, suggest an effort to shift bilateral relations, which have been shaped for nearly two decades by the U.S. military presence, counterterrorism and Iran’s influence in Iraq, toward a framework centered on economic partnership. However, achieving this transformation appears to depend on an approximately 75-day timetable that seeks to simultaneously end the foreign military presence in Iraq and neutralize the influence of nonstate armed actors within the same political timeline. Following his visit to the U.S. Zaidi is also expected to travel to Türkiye, Saudi Arabia, Iran and Jordan. In this context, his efforts to maintain balanced relations with neighboring countries can be viewed as part of Iraq’s broader strategy to diversify its foreign policy orientation and strike a balance among regional powers. This process is also closely linked to the goal of expanding opportunities for economic cooperation.
Search for reform and state capacity building
The Zaidi government’s economic approach is based on reducing Iraq’s dependence on oil revenues, diversifying investment sources and improving the management of public resources. Despite Iraq’s substantial oil income, the country’s inability to generate lasting capacity in employment, electricity, infrastructure and public services indicates that the problem stems less from a lack of resources than from how those resources are managed. Therefore, diversifying revenue sources requires not only the development of new economic sectors but also the establishment of state capacity capable of preventing existing revenues from being absorbed by political power-sharing arrangements and patronage networks.
The “Dawn Strike” anti-corruption operations launched after Zaidi took office can be viewed as a complementary element of the government’s economic policy. The arrests of lawmakers, senior bureaucrats and public officials have shown that the government is seeking to move its fight against corruption and mismanagement beyond the rhetoric of administrative reform. The expansion of the investigations into public tenders, the energy sector and the use of public resources indicates the emergence of an approach aimed at targeting economic interest networks within the state.
For Zaidi, combating corruption is one of the key tools for increasing the confidence of foreign investors and improving Iraq’s investment environment. From the perspective of international companies, the main challenge in Iraq is not a lack of investment opportunities. Rather, the investment climate is constrained by issues such as contract enforcement, bureaucratic interference, security costs, the influence of political actors over projects and the unpredictability of decision-making processes. Therefore, Zaidi’s anti-corruption message and his call for investment from U.S. companies can be viewed as components of the same strategy.
The concentration of agreements developed with the U.S. in the oil, natural gas and electricity sectors creates a significant contradiction. The agreement reached with HKN Energy, projects developed with General Electric and Chevron’s negotiations over the West Qurna-2 field could allow Iraq to diversify its investment partners. However, the diversification of foreign investors does not necessarily mean the diversification of the Iraqi economy. The fact that new partnerships remain largely focused on the hydrocarbons sector could increase production capacity while also reinforcing dependence on oil revenues.
OPEC production quotas, existing infrastructure deficiencies and the vulnerability of export routes to regional crises will also limit the financial returns of these investments. Zaidi’s call for a “fairer” OPEC production share for Iraq indicates a recognition that energy investments can only generate economic outcomes through greater production and export capacity. Therefore, the government’s main challenge will be to transform energy revenues into a vehicle for development that supports technology, industry, the digital economy, transportation and private-sector employment.
Zaidi-Trump deal and political conditions of economic partnership
The main outcome of the Zaidi-Trump meeting was the emergence of a new relationship model in which U.S. companies would gradually replace the role previously played by U.S. troops. While Trump argued that the need for a U.S. military presence in Iraq had diminished, he announced that U.S.-based oil companies would assume a broader role in the country. Zaidi, meanwhile, presented his visit as an effort to pursue a strategic partnership covering energy, technology, infrastructure, the digital economy and financing. As a result, the United States is expected to maintain its influence over Iraq not primarily through a direct military presence, but through investments, commercial agreements, technology transfers and political relations.
The economic content of the bilateral meeting was announced alongside a highly accelerated political timeline in the security sphere. Zaidi stated that U.S. forces would leave Iraq by Sept. 30, 2026, and that no group outside state institutions would be allowed to carry weapons after that date. The end of the U.S. military presence could weaken armed groups’ narrative of “resistance and external threats” while providing the government with stronger legitimacy to consolidate weapons under state control.
However, the approximately two-and-a-half-month timeline will test implementation capacity rather than political will alone. The start of weapons handovers by some groups could be presented as progress. Yet the transfer of heavy weapons and the reintegration of militia members into political or civilian life would require a longer process. In this context, the Zaidi government could pursue a model by the end of Sept. 30 that focuses not on complete disbandment, but on registering weapons, integrating certain elements into security institutions and transforming groups into political structures.
Trump’s explicit political support for Zaidi could both facilitate and complicate the process. Trump’s opposition to Nouri al-Maliki’s return as prime minister and his emphasis on his role in clearing the way for Zaidi could lead to Zaidi being portrayed domestically as an actor who came to power through U.S. preference. This perception could allow steps against armed groups to be framed as a U.S. demand rather than a requirement of Iraqi sovereignty.
The Zaidi-Trump meeting has revealed the possibility of a structural transformation in Iraq-U.S. relations, while also demonstrating that this transformation rests on a fragile balance. Replacing a military presence with an economic partnership will not only be a foreign policy choice but also a process dependent on Iraq’s domestic political and institutional capacity. The attempted drone attack targeting Erbil while Zaidi’s U.S. visits were still ongoing also highlighted the government’s limited capacity to exercise control in the security sphere. In this context, the Zaidi government’s main challenge will be to advance its claim to sovereignty in the security domain and its economic reform objectives simultaneously in a way that allows the two to reinforce each other.
The sustainability of the Iraq-U.S. economic partnership depends not only on improving the investment environment but also on limiting the economic and political influence of nonstate actors. If this condition is not met, the presence of U.S. companies in Iraq could become a new arena of competition within the country’s existing power dynamics. Similarly, the failure of efforts to dismantle or transform armed groups could increase security risks and weaken the feasibility of economic reforms. In this context, Zaidi’s success will be measured not by short-term timelines but by his ability to rebuild state capacity and direct economic resources toward a more inclusive development model. Although the economization of Iraq-U.S. relations appears possible, the durability of this process will depend on Iraq’s ability to stabilize its internal balances.
