September 1, 2020 Inquiry & Analysis Series No. 1529

Iran's Trail Of Political And Economic Chaos: Part I – The Iraqi Experience

September 1, 2020 | By Dr. Nimrod Raphaeli*
Iran, Iraq | Inquiry & Analysis Series No. 1529

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Iran does not conceal its quest for regional hegemony, starting with Iraq, Lebanon, Syria and Yemen. At one time, an Iranian ayatollah bragged that the capitals of the four countries were under Iran's control.[1] Of course, none of these countries was a model of democracy ruled by leaders known for their personal probity even before Iran entered the picture. However, Iran has accelerated the process of turning decaying regimes into failed states with little prospect of ever emerging again as a political whole.

This study examines the trail of political and economic chaos left by Iran in these four countries. Part I of the study, below, looks briefly at the way Iran and the four countries under its influence are rated by well-established international indexes. It then focuses on Iran's involvement in the internal affairs of Iraq. Part II of the study, to be completed later, will address the critical issues governing the relations between Iran and the three remaining Arab countries--Lebanon, Syria and Yemen.

Ranking Of Countries

For the rating of these countries, four internationally recognized indexes are used: the Democracy Index, the Corruption Perception Index, the Doing Business index, and the Global Peace Index. With a couple of minor exceptions, all the five countries under survey fall at the bottom rank of each of these indexes.

The Democracy Index ranks 165 countries and two territories on the basis of an assessment of 60 indicators falling within five categories: electoral process and pluralism; the functioning of government; political participation; political culture; and civil liberties. Based on that assessment, a country is then classified as one of four types of regime: "full democracy," "flawed democracy," "hybrid regime," and "authoritarian regime." Lebanon, the exception, is classified as hybrid regime (though it is likely to be downgraded following the recent disaster in Beirut). The four remaining countries are classified as "authoritarian."[2] Iraq, Iran, Yemen and Syria are ranked 118, 151,158 and 164, respectively, among 167 countries ranked. Iraq's much higher rating than Iran can be justified by its relatively free media.

According to Transparency International, which publishes the annual Corruption Perception Index, "corruption erodes trust, weakens democracy, hampers economic development and further exacerbates inequality, poverty, social division and the environmental crisis."[3] Not surprisingly, where democracy is lacking, and with it the absence of public control and accountability, corruption is high. Iran, Iraq, Yemen and Syria, which are at the bottom of the democracy index also occupy the bottom rung of the corruption index. Lebanon, Iran, Iraq, Yemen and Syria are ranked 137, 146, 162, 177, and 178 among the 180 countries ranked.

Another significant index in terms of its importance for foreign direct investment and economic management is the annual index issued by the World Bank called "Doing Business – Comparing Business Regulations in 190 Economies." The index comprises various categories such as business incorporation, getting a building permit, obtaining an electricity connection, getting access to credit and enforcing contracts. Iran, Lebanon, Iraq, Syria and Yemen are ranked 127, 143, 172, 176, and 187, respectively of the 190 countries surveyed. [4]

Finally, there is the 2020 Global Peace Index. The Index rates Iran, Lebanon, Iraq, Syria and Yemen as the least peaceful countries in the world. They are ranked 142, 146, 159, 161, and 162, respectively, among the 163 countries rated.[5] In terms of cost, the average economic cost of the 10 countries most economically affected by violence was equivalent to 41 per cent of GDP. By contrast, in the 10 most peaceful countries, the average economic cost was 3.9 percent.[6] Violence is costly; peace pays handsome dividends.

Iran: Poor And Destructive

The Islamic Republic of Iran has earned the notorious moniker of the world's largest initiator and exporter of terrorism – an accomplishment it has achieved either directly or through proxies it has meticulously and systematically cultivated. Its declared purpose is to export the Shi'ite Islamic Revolution, defined by its leadership as being now in the second stage of three (the third being global hegemony), which entails domination from "Bab el Mandeb to the Mediterranean," as well as creating an existential threat to the Jewish Israel. In addition to spreading terrorism and violence, in its attempt to dominate other countries, Iran's efforts have often resulted in political chaos and economic destruction in the countries which it has sought to dominate

The economic record of Iran is uniquely poor. The annual economic growth between 1980 and 2020 has averaged 1.6%, while the world economic growth for the same period has averaged over 3%. Looked at differently, over a period of 40 years the Iranian economy has grown 70% while the country's population has grown from 36 million to 83 million, a growth of 230%. The discrepancy is a clear indicator that the purchasing power of the Iranian population has declined appreciably over the last 40 years of theocratic rule.

Under the Trump administration's maximum pressure, Iran's economy contracted by 6% in 2018 and 8% in 2019, and is projected to contract by another 6% in 2020, accumulating a decline in the national economy of about one-fifth in the last three years alone. Historically, under its theocratic regime the Iranian economy has contracted nine times since 1980.[7] In today's Iran, there is a propensity to blame all the regime's failures on the sanctions.

Iran's Harmful Intervention In Iraq

Despite the fact that its economy is in a systematic decline due to mismanagement, corruption, and the impact of the various regimes of U.S. and U.N. sanctions, Iran has never held back from undermining the political stability and the economic prosperity of one of its richest neighbors – Iraq. Since its occupation by the U.S. in 2003, Iraq has fallen victim to deliberate political destabilization and economic exploitation by Iran through its many Shi'ite proxies, both political parties and militias, operating in the country in full coordination with Iran's Islamic Revolutionary Guard Corps (IRGC). Until killed by a U.S. drone in January of this year, Gen. Qassem Soleimani, commander of the IRGC's Qods Force which operates outside Iran, was free to come and go into Iraq with complete freedom. At his zenith, Soleimani was considered the most powerful man in Iraq.

Permanent Corruption In Iraq Has Been Exacerbated By Iran

Iraq is also one of the most corrupt countries in the world. Its economy is predominantly a cash economy, making it almost impossible to trace the amount or the path the money follows. The New York Times recently published in its magazine a most comprehensive and critical report on corruption in Iraq, "Inside the Iraqi Kleptocracy," giving ample and varied examples of corruption at the highest levels of government.[8]

One of the key centers of corruption is the Central Bank of Iraq, which auctions foreign currency daily, allowing private banks to convert Iraqi dinars into dollars to finance requests for imports by local businessmen. The daily auction can rise to as high as $180 million. In the words of The New York Times, the auction of foreign currency is "the sewage system of Iraqi corruption." Two examples will dramatize this point: In 2017, the Central Bank auctioned a total of $1.66 billion for the import of tomatoes ($16 million in the prior year) and another $2.86 billion for the import of watermelons, both from Iran. An article in a leading Iraqi paper suggests that any reform measures against corruption "must necessarily go the gate of the Central Bank."[9] 

Corruption has rendered the government totally dysfunctional, with no services to speak of. For example, electricity is available only a few hours a day, except to those who can afford to buy a private generator. Most of the allocations for building power grids have been stolen – a theft estimated at $60 billion.[10] The former minister of electricity was arrested recently for hiring 82,555 daily workers, the vast majority ghost workers, at a cost of 43 trillion dinars, or about $12 billion.[11]

The elephant of "corruption" being shown the "exit." Source: Al-Mada, Iraq, August 5, 2020

It is an open secret in Iraq that most of the sectarian political leaders, particularly those associated with Iran as well as some of the pro-Iranian militias, operating behind concealed names, have established their own banks, which they commonly use for money laundering and for channeling money into the Islamic Republic.[12] Berthold Brecht is credited with having coined the phrase "bank robbers are amateurs; professionals open a bank."

The PMU – Iran's Proxies In Iraq

The Popular Mobilization Units (PMU), known in Arabic as Al-Hashd Al-Sha'bi, were established in June 2014 by a fatwa (religious edict) issued by Iraq's most senior Shi'ite cleric, Grand Ayatollah Ali Al-Sistani, to fight ISIS's incursion into Iraq. The PMUs, multiple units under different leaders, attracted primarily Shi'ite elements from the central and southern provinces of Iraq. Some of the major units are the Badr Brigade, 'Asa'ib Ahl Al-Haq, and Kata'ib Hizbullah. From the outset, the Qods Force took over the financing and training of these units, under the overall leadership of Qods Force commander Qassem Soleimani.

The pro-Iran militias are becoming increasingly brazen in carrying out criminal acts against civilian protestors who, since October 2019, have been calling both for an end to corruption and for an end to Iranian intervention in the internal affairs of Iraq. Concerned about the expansion of the protests, pro-Iran militias, with the tacit approval of the former pro-Iran prime minister, Adel Abdul Mahdi, assaulted the protestors, killing as many as 500 and arresting thousands, holding them in secret prisons under their control. To generate income, all of it illicit, members of the militias engage in extortion of businesses, including liquor stores, night clubs, gambling casinos, and even houses of prostitution. The militias control the international port of Baghdad, most border crossings, and even the key port of Basra, which give them a free hand in smuggling of goods, weapons, and people in addition to a huge income.[13] Some of the illicit income ends up in the coffers of the Iranian government or supporting other terrorist organizations, primarily but not limited to Hizbullah in Lebanon.

A few of the pro-Iranian Iraqi militias identify themselves as wila'iyya, or loyal to the Iran's Supreme Leader, while, paradoxically, they are qualified as members of the Iraqi armed forces and draw salaries from the government of Iraq. In recent weeks, they have been firing Katyusha missiles into military bases where allied forces are stationed, into Baghdad international airport, and into the Baghdad Green Zone, primarily at the U.S. Embassy, accompanied by threats and demagoguery. A most recent example is the statement by Qais Al-Khaz'ali, one of the extreme pro-Iran militia leaders, accusing the U.S. of spending a huge amount of money to spread sexual perversion.[14]

Iran has also been harmful to Iraq in many other ways. Ten years ago, Iraq launched the construction of a large port, the Faw port, at the mouth of the Persian Gulf. Construction has not made much headway, allegedly for lack of funds. Iran has been pressuring Iraq to accept, instead, the construction of a rail line connecting the Iranian city of Shalamcheh with the Iraqi port city of Basra, with a plan to eventually extend the line to Syria's Latakia port. There are two key strategic objectives behind the pressure to build the railroad: First, it is to connect Iran with the Mediterranean ports and to boost the transit of goods between Iran and Syria; and second, it is to scuttle the idea of the Faw port, thus making Iraq dependent on Iranian ports for much of its imports.[15] On its part, Iran claims that the railroad will facilitate religious tourism to the benefit of both countries.

Iran's proxies in Iraq have also been active discouraging the power linkage between Iraq and the Gulf countries, in order to keep Iraq dependent on Iran's supply of power and of the natural gas necessary for operating Iraqi power plants. Influential pro-Iran political parties in Iraq have, until now, been successful in discouraging any attempt to liquefy the natural gas associated with oil extraction for domestic use. As a result, almost all of it is flared at a considerable loss to Iraqi economy and damage to its environment.

However, there may be relief on the horizon. Following Prime Minister Kadhimi's meeting with President Trump this month, the Iraqi minister of finance indicated progress in connecting Iraq's power grid with those of the Kingdom of Saudi Arabia and Kuwait. Saudi Arabia has also started talks on potential investments in the $2.2 billion Al-Ratawi project in the Basra province of Iraq, which would liquefy gas for domestic use.[16] This effort to help Iraq in fulfilling its energy needs contrasts with the fact that Iran's proxies have harassed the workers of Exxon Mobil who were engaged in developing a major oil field in the city of Qurna in southern Iraq in 2019, forcing them to leave. 

Perhaps the most harmful action taken by Iran against Iraq is in the water sector. This is not new. As far back as 2009, a MEMRI study[17] warned that Iran was reducing the water to Iraq by diverting major tributaries inside Iran. Iraq's minister of water resources at the time, Abdul-latif Jamal Rashid, was quoted as saying that "Iran has participated in a direct way to the loss of agricultural land by causing water shortage and increasing salinity." Similarly, now, 11 years later, the same Ministry of Water Resources has complained that, rather than cooperating with Iraq to resolve the water issues, Iran has taken advantage of the political situation in Iraq to implement special water projects for its own sole benefit. Most significantly, Iran has completely diverted the Korun River, a main source of water flowing into Shat-Al-Arab which is formed by the confluence of the Euphrates and the Tigris rivers in Iraq.

"Iran's measures threaten tens of thousands of Iraqis with thirst and drought" – Al-Hurra, August 25, 2020

Hatem Hamid, director of the National Center in the Ministry of Water Resources, claimed that after 10 meetings with Iranian officials no progress had been achieved because Iran refuses to acknowledge Iraq's rights in Shat-Al-Arab.[18]  Iran has also dried up the Lower Zab River, one of Iran's-Iraq's transboundary rivers, and taken it out of Iraq's use. Finally, Iran built the Daryan Dam on the Sirwar River, which is one of the main sources of water for agriculture and drinking in Kurdistan. The dam caused the water level in the river to fall by 13 feet.

After diverting or reducing the flow of water from Iran to Iraq, and thereby limiting the production capacity of Iraqi agriculture, Iran has taken advantage of its misdeeds by flooding the Iraqi markets with Iranian agricultural products. 


Clearly, through many means Iran has continued to undermine Iraq's political stability and harm its national economy. Iran's long-term strategy is to establish a complete hegemony on Iraq and bring it into the orbit of Iran's theocratic rule of Wilayat Al-Faqih (Rule of the Jurisprudent). Still, there is room for optimism. There are several reasons why Iran's strategy may not succeed. There is a fundamental difference in the political orientation of the Shiite religious establishments in the two countries. Unlike Iran's religious establishment which has always been politically active and influential, the one in Iraq has historically been non-active in domestic politics and it does not adhere to the concept of Wilayat Al-Faqih. No less significant is the fact the majority of the Iraqi Shi'a community in central and southern Iraq is largely tribal and holds negative views of Iran.

There are also large Sunni and Kurdish populations in Iraq, which will reject control of their country by its eastern neighbor. Finally, the world has witnessed the rebellious youth of Iraq, who have demonstrated in the streets of Iraq against both the endemic corruption and Iran's intervention in their country. Iran's own financial constraints will place a low ceiling on the level of financial support it can provide to its proxies. Of course, no realist could deny that logic and rational considerations may not always be the dominant factor in determining the fate of nations in that part of the world.


*Nimrod Raphaeli is a MEMRI Senior Analyst (Emeritus).



[2] The Economist Intelligence Unit.

[3] 2020.

[4] World Bank, Doing Business 2020. Washington, D.C. 2020.

[5] Global Peace Index 2020: Measuring Peace in a Complex World.

[6] Peace Index, p. 41.

[7] Data drawn from the International Monetary Fund archives.

[8] The New York Times, July 29, 2020.

[9] Al-Mada (Iraq), August 13, 2020.

[10] Al-Mada (Iraq), August 9, 2020.

[11] Sot-il-iraq (Iraq), August 24, 2020.

[12] Al-Mada (Iraq), August 12, 2020.

[13] The Kadhimi government has recently taken measures to bring most border crossings under control, but it is too early to determine the success of these measures.

[14] Shafaq News, August 22, 2020.

[15] Alhurra, August 19, 2020; Al-Mada (Iraq), August 19, 2020.

[16] The Wall Street Journal, August 24, 2020.

[17] MEMRI Inquiry and Analysis No. 1524, Water Crisis in Iraq: The Danger of Desertification, by Nimrod Raphaeli. Originally published in 2009, it was updated and reissued in 2020 under the same title.

[18] Al-Mada (Iraq), August 22, 2020.

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