Iraq’s Militias at a Crossroads: Pressure, Leverage, and the Future of Iranian Influence

Two decades after the fall of Saddam Hussein, Iraq once again sits at the center of a regional contest for power. Tehran long relied on Baghdad to anchor what was widely known as the “Shia Crescent,” a chain of influence stretching from Iran through Iraq and Syria to Lebanon. That arc, however, has fractured: the killing of Hezbollah leader Hassan Nasrallah and the ousting of Syria’s Assad regime last December shattered two key pillars of Iran’s proxy network. These changes, alongside strong U.S. pressure and Iraq’s own evolving politics, have undermined Iran’s security architecture and have forced Baghdad to confront regional decisions it has long deferred.

The contest is no longer a simple proxy war. Economic lifelines, shifting alliances, and public impatience with foreign interference have created new vulnerabilities for Tehran’s proxies. Iraq still depends on Iranian electricity and trade, but its politics are less malleable and more cognizant of the costs of militia dominance than in the chaotic years after 2003. Against this backdrop, the once untouchable network of militias is encountering scrutiny and growing resistance that would have been unthinkable a decade ago.

Washington Tightens the Economic Vise

While Baghdad navigates a shifting landscape, Washington has viewed the shift as an opportunity to intensify economic pressure on both Iraq and Iran. American policy now blends financial leverage with targeted sanctions to erode Iran’s influence. Since 2018, Washington has exploited Baghdad’s reliance on Iranian electricity and natural gas, steadily shortening the waivers that allowed Iraq to keep buying power from across the border. In February 2025, U.S. officials ended Iraq’s exemption for Iranian electricity altogether—a clear signal that gas imports could be next.

The dollar channel has become another point of pressure. By tightening oversight of the Central Bank of Iraq and private financial institutions, U.S. regulators have sharply curtailed dollar smuggling to Iran, cutting off one of Tehran’s most reliable sources of hard currency. Civilian imports from Iran—worth more than $12 billion—remain largely untouched, but U.S. officials describe this trade as a lever to pull when negotiations with Tehran inevitably stall.

The PMF and Escalating U.S. Measures

Financial pressures alone are not enough to curb Iranian influence in the country, as Tehran’s reach extends beyond economics to powerful militias that are embedded within Iraq’s political and security institutions. The Popular Mobilization Forces (PMF) was born in 2014 when Grand Ayatollah Ali al-Sistani called for volunteers to fight the Islamic State (ISIL). Initially a loose coalition, the PMF soon became a formal arm of Iraq’s security apparatus. Many factions, however, predate the battle against ISIL and maintain close ties to Iran’s Islamic Revolutionary Guard Corps. Known as wilāʾī groups for their allegiance to Iran’s Supreme Leader, these forces combine a readiness to fight for Iranian interests with deep political ambition.

During the war against ISIL, the United States reluctantly provided air support to some PMF units despite documented abuses. That uneasy partnership allowed the militias to expand their influence, amass heavy weaponry, and build economic empires ranging from construction firms to customs checkpoints. Today, these militias remain Tehran’s most durable instrument in Iraq, guaranteeing political leverage. Yet this success has also made them explicit targets.

Washington has moved from grudging acceptance of the PMF to active containment. The United States opposed new Iraqi legislation that granted the PMF broad security roles and legalized its economic interests, including the powerful company “Al-Muhandis General Company,” which operates as the PMF’s main financial and construction arm. The company has become a key tool for the militias to gain access to public contracts, channel state funds, and expand their economic influence across Iraq’s reconstruction and infrastructure sectors. In July 2025, the State Department warned that Iraqi financial institutions such as the Central Bank and Ministry of Finance could face penalties if they continued budgetary funding of PMF units.

Two months later, the United States reclassified four key factions—Harakat al-Nujaba, Kataib Sayyid al-Shuhada, Harakat Ansar Allah al-Awfiya, and Kataib Imam Ali—from “Specially Designated Global Terrorists” to the more severe “Foreign Terrorist Organizations” list, placing them alongside Kataib Hezbollah. The designation carries significant implications, criminalizing financial dealings with these groups and exposing Iraqi ministries to U.S. sanctions if they continue payments. Iraqi bankers admit that even routine budget transfers now carry new legal risk.

Regional Reordering and Enduring Iranian Influence

Pressure on Iraq’s militias comes as regional currents shift against Iran’s proxy model. Hezbollah’s influence in Lebanon is fading amid economic collapse, political paralysis, and the Lebanese government’s gradual disarming of the militia. In Syria, an internationally recognized transitional leadership is being welcomed by key Arab states, signaling a desire to reclaim Syria’s sovereignty after the demise of Iran’s ally in Damascus. Interim Syrian President Ahmed al-Sharaa recently declared that his government had “helped the region rid itself of the militias in Syria backed by Iran, and of Hezbollah as well.”

Meanwhile, a new Sunni-led axis linking Gulf capitals, Turkey, Egypt, and a reemerging Syria is gaining momentum as a counterweight to Tehran. This bloc—bordering some of the region’s most aggressive actors, including Iran, Hezbollah, and Israel—seeks to stabilize Syria, integrate regional economies, and end Iran’s ability to project power through sectarian militias. For Iraq’s PMF, once celebrated as the spearhead of a triumphant “Axis of Resistance,” this environment represents a strategic dead end.

These regional changes magnify the dilemmas facing both Tehran and Baghdad. For Iran, Iraq is no longer just a neighbor but the last defensible outpost in a regional order where its other proxies are eroding. The 2020 U.S. strike that killed Qassem Soleimani, the commander of the Quds Forces delivered the first major shock to Iran’s militia strategy. Today, the combination of U.S. financial pressure, shifts in Syria, and Hezbollah’s decline constitute a second, potentially decisive blow.

For Iraq’s Shia political elite, the stakes are equally high. The PMF has been more than a security force; it has functioned as the guarantor of Shia dominance in the post-2003 order. Dismantling or even substantially weakening it risks upsetting the fragile balance among Iraq’s factions and threatening the survival of parties that depend on militia backing.

Yet even if U.S. pressure succeeds in reducing militia power, Tehran’s influence will not disappear. Iran’s connection to Iraq is rooted in shared religious identity and institutions, and dense social networks that predate the PMF by decades. Najaf and Qom remain twin centers of Shia scholarship, and millions of Iranian pilgrims travel annually to Iraq’s holy sites, sustaining clerical and cultural ties immune to sanctions. Iranian goods dominate Iraqi markets, Iranian-backed political parties shape elections, and cross-border family ties provide channels of influence beyond the reach of military pressure. These ideological and social connections ensure that Iraq will remain a pivotal arena for Iranian influence in the region.

A Fragile Balance: Charting a Path to Sovereignty

Iraq also faces a precarious internal equilibrium. External pressures from the United States, Israel, and regional actors—especially Iran—intersect with domestic rivalries that leave the state vulnerable to manipulation. Competing factions pull Baghdad in different directions: some seek genuine independence, while others remain tethered to foreign patrons like Iran. The absence of a cohesive national strategy or internal consensus has deepened this vulnerability, allowing outside powers to exploit Iraq’s weaknesses.

Future stability depends on forging a unified domestic policy capable of resisting external interference and addressing internal fractures. Strengthening independent institutions, reducing reliance on foreign powers in security and political decision-making, and building national unity are prerequisites for genuine sovereignty. Without such efforts, Iraq risks sliding further into instability and remaining a battlefield for regional rivalries rather than an independent actor in its own right.

Consequently, Iraq stands at a decisive crossroads. While the gradual dismantling of Iran-backed militias signals that the era of unchecked proxy power is waning, it does not mark the end of Iranian influence in the country. Tehran’s reach in Iraq rests on more than guns and budgets; it is anchored in shared faith, overlapping societies, and a long history of clerical, economic, and familial ties that sanctions cannot erase. The United States and its regional partners may succeed in curbing militia power, yet Iran’s ideological and social networks will continue to shape Iraq’s politics and identity.

Baghdad therefore carries a dual burden. It must seize this moment to strengthen state sovereignty and integrate militias into legitimate national structures, while managing the enduring reality of Iranian influence that extends far beyond armed groups. Success will require an internal political compact strong enough to withstand external manipulation and unify Iraq’s diverse factions. As one Iraqi parliamentarian remarked, “if we hesitate, the decision will be made for us—by neighbors, by militias, or by the street.” Whether Iraq transforms this moment into genuine sovereignty or remains a contested arena where American leverage and Iranian ambition collide will determine the future of Iraq and its place in an everchanging Middle East.

The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views of Gulf International Forum.