An Iraqi man kisses the Iraqi flag at Tahrir Square during a protest against the US and Israel in Baghdad this month. Getty
An Iraqi man kisses the Iraqi flag at Tahrir Square during a protest against the US and Israel in Baghdad this month. Getty
An Iraqi man kisses the Iraqi flag at Tahrir Square during a protest against the US and Israel in Baghdad this month. Getty
An Iraqi man kisses the Iraqi flag at Tahrir Square during a protest against the US and Israel in Baghdad this month. Getty


Iraq's development agenda has been set back by the US-Israel war in Iran


Zaid Al-Ali
Zaid Al-Ali
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April 18, 2026

For almost a decade, Iraq has enjoyed relative peace, stability and economic growth. That may all be at risk due to the political fallout from the war that the US and Israel launched against Iran in February.

Baghdad’s unwillingness or inability to take a firm position on the war probably means that it could fall prey to the increasingly aggressive actors in the future. This could drag the country back to a period marked by long-term crises and instability.

Since 2003, Iraq’s constitutional system has made it possible for certain actors to play an oversized role in the country’s politics, particularly groups aligned to the Iranian regime. Having consolidated a substantial amount of economic control over the years, these groups today operate with financial autonomy.

Despite periodic tensions between the state’s institutions and these groups, successive governments have avoided direct confrontation with them. This approach has largely (although not always) held, contributing to one of the most stable periods in the country’s recent history.

It’s noteworthy that the Iran-aligned groups avoided getting involved in the recent Gaza war, even as some of them were being pressured to target American or Israeli assets. The reasons for their restraint included an assessment that such interventions would yield limited strategic impact; an understanding that Iran was not facing an existential threat at the time; and a fear that they would be targeted the same way Hezbollah and the Houthi rebels were.

In the current war, however, these groups have repeatedly struck US installations in Baghdad as well as targets in Iraq’s Kurdistan Region and the Gulf countries despite American retaliatory fire. Indeed, Iraq is the only nation in the region to have been directly targeted by all sides.

Baghdad’s decision to refrain from confronting Iran-aligned groups in the past is not a symptom of military inferiority, but rather driven by a desire to avoid a destabilising confrontation with Tehran.

Any decision to confront the groups could lead to significant military clashes in the capital – an alarming eventuality that has fortunately been avoided for years. There are also concerns that a confrontation could force the security services to splinter. While some analysts argue that these concerns are overblown, there is no precedent for that type of engagement.

This makes it impossible to know how a confrontation would play out. At the very least, it would precipitate a severe internal political crisis that could take years to resolve.

The nature of the current crisis makes a decision to confront Iran-aligned groups even more challenging. Politically, the conflict interrupted the government formation process that followed last year’s parliamentary elections (with Parliament finally being able to elect a new president last week, more than two months after the constitutional deadline ended).

Consequently, Iraq is currently being led by a caretaker government with constitutionally limited powers and with even less political bandwidth than an elected government would have. Simultaneously, Prime Minister Mohammed Shia Al Sudani, who is seeking a return to office, will need the confidence of the top legislature, in which Iran-aligned factions hold a potentially veto-wielding bloc. Mr Al Sudani is acutely aware of this dynamic, and is carefully avoiding actions that might jeopardise his prospects.

Just as importantly, the public remains deeply divided over their country’s response to the Iran war.

While citizens in the Kurdistan Region are staunchly opposed to getting entangled, the rest of the country is sharply divided over the issue. Precise metrics are not available, there is little doubt that a considerable segment of Iraq’s population – including some of the groups that Mr Al Sudani needs the support of, if he wishes to return as prime minister – either sympathises with Iran or remains overtly hostile to both Israel and the US. There is even increasing evidence that specific segments of society have been radicalised by recent events. A move against Iran-aligned groups in the current environment would, therefore, be considered a betrayal for many Iraqis.

Compounding this volatile security environment is a looming economic emergency. Iran’s decision to close the Strait of Hormuz has already cost Iraq’s oil industry billions in lost revenue, threatening the state’s ability to pay salaries and pensions. It has also underlined how vulnerable Iraq is to Iranian strategic interests. Oil exports make up almost 90 per cent of government revenue. Any action against Iranian interests could, therefore, have an adverse impact on both the economy and social cohesion.

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The recent kidnapping and subsequent release of US freelance journalist Shelly Kittleson perfectly illustrates these complex institutional dynamics. That she was kidnapped by Kataib Hezbollah, a paramilitary group that is supposed to operate within the framework of Iraq’s security forces, highlights a stark internal contradiction. The group is financed by the state, yet it deliberately and explicitly undermines state policy.

Lately, Baghdad has sought to rehabilitate the nation’s international image as a secure and welcoming destination for foreigners. Indeed, such kidnappings have become exceedingly rare in the capital in recent years, making this incident particularly damaging to the state’s narrative of progress.

The government’s response further underscores the systemic paralysis. While a comprehensive account of how Kittleson was released is not yet available, the government reportedly secured her freedom after releasing some detained Kataib Hezbollah members.

The episode demonstrates how Iran-aligned groups undermine federal policy with impunity. It reveals a government that, even when confronted with a discrete yet critical challenge to its sovereignty and international standing, remains fundamentally unwilling to enforce its own laws.

Moving forward, Baghdad’s cautious approach appears to be no longer sustainable. With ongoing negotiations between the US and Iran unlikely to produce a durable solution, both powers will insist that countries in the region take sides, including those that suffer from internal contradictions. This is already happening in Lebanon.

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Baghdad’s decision to refrain from confronting Iran-aligned groups is driven by a desire to avoid a confrontation with Tehran

In so far as Iraq is concerned, the US, the Kurdistan Regional Government and some Gulf countries may demand that Baghdad take meaningful action against Iran-aligned groups. The US, in particular, might even threaten the government with economic sanctions.

Conversely, these groups are likely to intensify their predatory behaviour to bolster Tehran’s position, and may even have been emboldened by Baghdad’s permissive attitude. Caught between the two powers, the government is unlikely to be able to resolve its internal contradictions or challenge these groups as they pursue their own policies on the ground.

And herein lies the critical risk that the war has created for Iraq. In the new environment, the government’s default position, which is to avoid internal confrontation on even the smallest issues, will be interpreted by Washington as acquiescence and support to Iran. If that were to come to pass, we should expect more military confrontation in Iraq and economic damage.

Some months ago, Iraqis voted in a relatively uneventful election and were getting ready for a new government to take charge and continue to focus on development and stability. Instead, their country has today become a backdrop in a struggle between powers that it has no control over.

Updated: April 18, 2026, 4:00 AM