For more than two decades, the Iraqi government has sat uneasily between the United States and its neighbour Iran, trying to maintain good relations with two countries at loggerheads with each other. Now, with the U.S. (alongside Israel) and Iran in open confrontation, Baghdad’s balancing act has made Iraqi territory a target for both sides. The federal government has proclaimed Iraq’s neutrality in the conflict, but it has been unable to keep the country out of the fray: Iraqi armed groups aligned with Iran are pitted against others linked to the U.S., as well as against the U.S. itself and its allies in the vicinity. Under their umbrella platform, dubbed the Islamic Resistance in Iraq, the groups tied to Tehran have claimed over 750 strikes on U.S. targets in Iraq and the region. The Kurdistan Regional Government, which is close to the U.S., has found itself under a similar barrage, with Iran and its aligned groups conducting nearly 500 missile and drone strikes on the region from the war’s onset until the ceasefire announcement on 8 April. 

The ceasefire has brought a degree of respite, possibly enabling political forces in Baghdad to finish the job of forming a new government following elections in November. If hostilities do not resume, tensions within Iraq’s political establishment are likely to ease; but the war has upset Baghdad’s effort to stay on good terms with both the U.S. and Iran, and its relations with Washington are unlikely to emerge unscathed. Perhaps the greatest immediate peril is economic: with the reopening of the Strait of Hormuz a work in progress, Iraq has been largely unable to ship its oil to market. Should the war resume, and Iraq’s hydrocarbon wealth continue to go untapped, the risks of domestic upheaval will mount.

The roots of U.S.-Iran competition in Iraq lie in the 2003 U.S. invasion to overthrow Saddam Hussein’s regime, which left in its wake a massive U.S. military, diplomatic and economic footprint across the country. Since the first elections under U.S. occupation in 2005, Washington has supplied successive Iraqi governments with extensive military and development aid. Iran, for its part, saw both danger and opportunity in these events. On one hand, the U.S. invasion had put hundreds of thousands of troops answering to Washington, which had been Tehran’s chief foreign adversary since the Islamic Revolution in 1979, on Iran’s western land border. On the other hand, it had removed another mortal foe in Saddam Hussein, eventually replacing him with a government backed partly by Shiite Islamists who had spent years in exile in Iran. Still feeling the trauma of the Iran-Iraq war in the 1980s, the Islamic Republic saw a chance to bring a more politically adjacent Iraq onto its side while hamstringing any scheme the U.S. might hatch to effect regime change in Tehran as well as in Baghdad. To counter the U.S. presence, it began cultivating Iraqi political parties and arming paramilitary groups.

Following the withdrawal of most U.S. troops from Iraq in 2011, the rivalry turned into managed competition, calibrated through deterrence as well as back-channel coordination. Between 2014 and 2017, the U.S. military and Iraqi government forces fought alongside paramilitary groups assembled under the umbrella of al-Hashd al-Shaabi (Popular Mobilisation) to beat back ISIS, which had seized a third of the country. Some groups within the Hashd, which arose in response to a call from Shiite clergy in the Iraqi shrine city of Najaf, had no ties with Tehran, but many of its best-armed factions did. 

When the U.S. and Israel struck Iran for the first time on 28 February, Israel simultaneously hit rocket launch sites and weapons depots belonging to Iran-aligned Hashd groups in Iraq. Iran retaliated by attacking the U.S. bases at Harir and Erbil airport, both in Iraqi Kurdistan. Erbil, the Kurdistan region’s capital, hosts the largest U.S. contingent in Iraq, comprising around 2,500 troops, who remain as part of the coalition the U.S. assembled to battle ISIS. Meanwhile, the Iran-backed groups, all members of Tehran’s “axis of resistance”, promptly began firing rockets at U.S. installations in Iraq as well as in neighbouring Saudi Arabia, Kuwait, Jordan and, later, Syria. The U.S. in turn struck these groups’ bases, some of which they share with Hashd factions not tied to Iran, as well as their top commanders. Over the course of the war’s first month, some 80 Hashd fighters were killed in U.S. bombardment. 

While dozens of Hashd groups have been absorbed into the state security apparatus since 2016, the handful most loyal to Iran have continued to act autonomously and with little restraint from Baghdad. These include Kata’ib Hizbollah, notorious for taking foreigners hostage to press its demands, and Harakat al-Nujaba; both fought on the Assad regime’s side in the Syrian civil war. They are now using Hashd bases and weaponry to launch drone and rocket strikes on U.S.-linked facilities in Iraq and the region. In the war’s first week, they mainly attacked military bases. But they later widened their sights to encompass U.S. diplomatic missions and energy infrastructure in Kurdistan and Basra, where U.S. oil companies operate. On 8 April, Washington alleges, one of these groups ambushed a convoy transporting U.S. diplomats in Baghdad. Occasionally, whether by accident or design, Hashd projectiles have hit civilian sites.

Suffering drone and rocket attacks nearly every day, the Kurdistan region has been worst affected. Non-U.S. components of what remains of the anti-ISIS coalition, including Italian and French contingents, have also come under fire; a French soldier was killed on 13 March. In Baghdad, repeated strikes on the U.S. embassy and Iraq’s Victory base near the international airport, which the U.S. uses for diplomatic travel and logistics, triggered withdrawals of diplomats and military personnel, including several hundred who are part of a non-combat NATO mission that has advised the Iraqi armed forces since 2018. Following a strike on Baghdad’s Rashid Hotel, home to several diplomatic missions, Saudi Arabia withdrew its embassy staff. Most foreign oil companies have suspended operations and pulled their international employees out of the country. Iran, for its part, continued its strikes, mainly on Iranian Kurdish opposition groups based in Iraq, but a missile barrage also killed six Kurdish peshmerga fighters on 24 March.

It is not the first time that these groups have squared off with the U.S. On past occasions when Washington and Tehran have butted heads, such as after President Donald Trump’s withdrawal from the Iran nuclear deal in 2018, during his first term, a number of Hashd groups and the U.S. have traded fire. Those hostilities peaked in January 2020 with a U.S. airstrike in Baghdad that killed Hashd leader Abu Mahdi al-Muhandis and Qassem Soleimani, commander of Iran’s elite Qods Force. Hashd-affiliated political parties later called for the full withdrawal of U.S.-led coalition forces from Iraq. (Based on a U.S.-Iraqi agreement in 2024, the U.S. pulled out of Iraqi bases outside Kurdistan in the autumn of 2025, with the final nationwide withdrawal scheduled for September.) At the same time, the loss of Muhandis and Soleimani, who had been a unifying figure for the Iran-aligned Hashd factions, widened divisions that had already begun to emerge among these groups. In the Hashd as a whole, most groups have since assigned greater importance to electoral politics than to armed resistance, with their affiliated parties currently occupying around 80 seats in Iraq’s 329-member parliament.

Tensions were then largely contained for three years before erupting again with the Hamas attacks in southern Israel on 7 October 2023 and the Gaza war that followed. In professed solidarity with Hamas, “axis of resistance” members launched attacks on both Israeli and U.S. assets in the region. Yet the Iraqi groups’ role was marginal during this period, when compared with Hizbollah in Lebanon and the Houthis in Yemen, as both Iran and the U.S. were eager to limit escalation of fighting in Iraq. Tehran wanted to keep the Iraqi groups in reserve as its last line of “forward defence”, as it refers to the strategy behind the axis, allowing the government in Baghdad to keep the Iran-backed groups on a leash. During the twelve-day war between Israel and Iran in June 2025, which the U.S. briefly joined, these groups remained on the sidelines. 

In the present war, however, the gloves have come off. The Iran-aligned groups view the conflict as an existential matter both for their sponsor Iran and themselves. They seek to accelerate the exit of all U.S. troops from Iraq, as per their longstanding demand, while driving a durable wedge between Washington and Baghdad. They claimed an early tactical success when, after making a series of attacks on the U.S. embassy, the U.S. withdrew numerous diplomatic and military personnel during a unilateral five-day pause announced by Kata’ib Hizbollah on 18 March. The U.S. also stopped trying to kill the group’s leaders during the pause. 

This brief suspension in fighting exposed the different tacks taken by the Iran-backed groups. For a start, Harakat al-Nujaba did not follow Kata’ib Hizbollah’s lead. Nor do the groups appear to agree on the extent to which they should treat the Iraqi government as hostile. On 21 March, one of the groups struck the Iraqi National Intelligence Service (INIS) headquarters, killing an officer and prompting condemnation from across the Iraqi political establishment. Neither faction took responsibility, though both groups at first attempted to justify the strike by claiming that Sunni Arab and Kurdish intelligence officers were acting on behalf of Mossad, Israel’s spy agency. As denunciations of the attack mounted, Kata’ib Hizbollah claimed that the INIS itself had orchestrated it as a way to discredit the Iran-aligned groups. Similar confusion followed in the wake of an attack by one of the groups on the residence of Nechirvan Barzani, the Kurdistan region’s president, in Duhok on 28 March. Following a chorus of disapproval that included Iran’s foreign minister and the Islamic Revolutionary Guard Corps, two of the Iran-backed groups, Kata’ib Hizbollah and Kata’ib Sayid al-Shuhada, condemned the attack, implying – without offering details – that it might have been a false flag operation. 

Despite their differences and rivalries, the Iran-backed groups all want to bend the Iraqi government to their will. A central component of that strategy has been to hijack the Hashd. By using the Hashd’s state-sanctioned assets, while remaining in effect outside the prime minister’s chain of command, these factions have made the organisation as a whole a target for U.S. strikes. Dozens of casualties among the Hashd rank and file have provoked anger at the U.S. among many who do not share the Iran-aligned factions’ agenda. Such sentiments are spreading in the general public as well, following a U.S. strike in Anbar governorate on 25 March that killed seven soldiers encamped near a Hashd base. 

Not unlike Iran itself, the Iran-backed groups are likely to claim victory if they merely survive the hostilities intact. Groups like Kata’ib Hizbollah and Kata’ib Sayid al-Shuhada could become even more assertive in Iraqi politics as well as in shaping government policy vis-à-vis outside alliances. But Hashd figures who have invested heavily in electoral politics and are more attuned to Iraq’s need to strike a balance between Iran and the U.S. are wary of this prospect. Two interesting cases in point are Qais al-Khazali and Hadi al-Ameri, Hashd leaders whose positions otherwise suggest alignment with the Iran-backed groups (Ameri even fought on Tehran’s side during the Iran-Iraq war). Both leaders previously resisted the U.S. occupation of Iraq. But both have also signalled unease with unchecked paramilitary participation in the present war. 

The Iraqi government wants to stay out of the war but has been unable to. It cannot prevent the U.S., Israel or Iran from violating its airspace with drones and ballistic missiles, and it cannot stop the Iran-backed Hashd factions from firing their own projectiles at targets inside Iraqi borders or outside them. Cracking down on these factions would require the government to pit Shiite forces against one another, a taboo that few if any Shiite leaders are willing to break. As a result, Iraq’s post-ISIS stability, always fragile, is in serious jeopardy. 

Iraq has yet to form a new government after the November 2025 elections, meaning that Prime Minister Mohammed Shiaa al-Sudani is only a caretaker. But his cabinet’s difficulties run deeper. Even a fully empowered government would struggle to keep Iraq out of the mêlée, given its continued reliance on the U.S. in the military and economic domains as well as on Iran for energy imports and commercial ties. The strategy of balancing the U.S. against Iran to insulate the country from external shocks, pursued by successive Iraqi governments, no longer seems workable. 

Following the U.S.-Israeli assault on Iran, Baghdad has persisted in treading a fine line between its two most important foreign partners. It has called for a return to negotiations to end the war, seeking to distance itself from the fighting by both denouncing violations of Iraq’s sovereignty and declaring that Iraqi soil should not be used to launch attacks on diplomatic missions or neighbouring countries. It has aimed to be even-handed in its condemnations, trying to appease all sides, but it has wound up satisfying none. On 24 March, the government denounced U.S. strikes on the Hashd and Iranian strikes on Kurdish peshmerga, summoning both the U.S. chargé d’affaires and the Iranian ambassador in Baghdad to the foreign ministry. It also called on the Hashd leadership to prevent unlawful actions by its members, without explicitly naming the groups in question, while authorising state personnel – including Hashd fighters – to use force in self-defence. The government has come no closer than that to publicly acknowledging that Iran-linked groups within the Hashd have been firing rockets and drones. 

The government’s attempt to find equidistance in its approach to the war has gone down poorly in many quarters, both abroad and at home. After Saudi Arabia, Qatar, the United Arab Emirates, Kuwait, Bahrain and Jordan demanded in a joint statement that Iraq take measures to stop attacks from its territory, the Iraqi foreign ministry assured them of Baghdad’s readiness to do so. But the Iran-aligned groups responded with open defiance, with one declaring that “this is the Iraq of the resistance”. Iraq’s relations with its Arab neighbours, which had started to recover from decades of rancour following the August 1990 Iraqi invasion of Kuwait and the 2003 Iraq war, have deteriorated as a result. Domestic fault lines have deepened as well, especially between Baghdad and the Kurdistan Regional Government.

The strongest official rebuke of the Iran-aligned groups’ participation in the war, meanwhile, has come from the head of Iraq’s Supreme Judicial Council, Chief Justice Faiq Zaidan. He stated that their unilateral military actions violate the constitution, which requires a two-thirds majority in parliament to approve the declaration of a state of war. Yet the constraints on what Iraq’s ruling coalition, the Shiite Coordination Framework, can do to hold back Iran-backed groups have emboldened these outfits, putting at risk the brittle trust among Shiite Islamist, Sunni Arab and Kurdish parties that keeps the country’s ethno-sectarian power sharing system from cracking apart.

Even if large-scale hostilities between the U.S. and Iran subside, U.S.-Iraq relations will remain strained. Prior to the war, Washington relied primarily on diplomatic pressure to push Baghdad to rein in paramilitary groups, imposing sanctions on those it had designated as terrorist and signalling red lines regarding their involvement in selecting the next prime minister. The extent of U.S. clout is a function of diplomacy and aid, as well as the remaining garrison, which continues to provide Baghdad with critical support, particularly in fighting ISIS remnants. Moreover, strong ties with the U.S. have given successive Iraqi governments flexibility in dealing with Iran’s outsized influence.

The war is changing this relationship. U.S. attacks on Iran-linked Hashd groups have the objective of weakening them, both militarily and politically, but may end up strengthening them instead by intensifying anti-U.S. feeling among Shiites. The U.S. strike that killed Iraqi soldiers complicated matters further by undermining Baghdad’s ability to defend its strategic partnership with the U.S. in the court of public opinion. With a view to protecting that partnership, as well as to keeping Iraq out of the war, Baghdad and Washington established a High Joint Coordination Committee. But the committee has met only once, on 26 March, and little has changed thereafter to halt worsening conflict on the ground.

Washington’s dilemma is now clear. More attacks on paramilitary groups could inflame the Iran-backed factions and destabilise Iraq. But de-escalating could consolidate these groups’ prestige and prominence. Depending on when and how the war with Iran ends, as well as on who makes up the new Iraqi government, the Trump administration may decide to change the timeline for the final U.S. troop departure. An outcome that Washington might settle for is a reduced military footprint that still allows the U.S. to keep Iran-linked Hashd factions at bay with occasional air raids. Friction with Baghdad might remain, however, since some parties in the governing Shiite Coordination Framework view a full U.S. exit as an opportunity to remove the Iran-backed groups’ primary justification for acting outside the single state chain of command. 

For now, the Trump administration remains undecided about how to proceed with withdrawal from Iraq. U.S. officials who have pushed for the past post-ISIS military drawdowns in Syria, as well as for the troop reductions in Iraqi Kurdistan, are pressing for a total U.S. departure from the country. There is broad agreement, a former Trump administration official told Crisis Group, that the U.S. should scale back its presence in Iraq, in both military and diplomatic terms. One reason is exposure to attacks from Iran and its allies. Another is Washington’s confidence that it can rely on counter-terrorism cooperation with Amman and the new authorities in Damascus. The U.S. could use bases in Jordan, if necessary, to bomb targets in Iraq and Syria. Even so, perceptions in Washington could still be altered by the arrival of a new government in Baghdad and the stance it adopts toward Iran-aligned groups. 

To clip the wings of Iran-backed armed groups in Iraq, Washington has other forms of leverage it could exert on Iraqi authorities. It could extend sanctions against individuals and companies connected to Iran’s “axis” to encompass more Iraqi entities or political figures. The U.S. Treasury did precisely that on 17 April, when it designated seven Iran-backed paramilitary commanders involved in attacks on U.S. interests in Iraq, but it could impose still more such penalties. Washington could also prevent Iraqi banks from trading in dollars, as it has in the past, or even delay or withhold dollar transfers from Iraq’s oil proceeds that are deposited in an account of the Federal Reserve in New York. It could stop extending energy waivers for Iraq’s gas and electricity imports from Iran. Lastly, it could withhold or even cut off military aid. The big question is what, if anything, would then remain of the two countries’ security cooperation.

Kurdistan has emerged as the war’s most exposed arena. Like Baghdad, the regional government in Erbil declared neutrality in the hostilities, but that has not helped shield it. Hosting U.S. forces has made it a prime target for attacks by Iran and Iran-linked Hashd groups, which have stretched far beyond military sites. These have hit not only Erbil, the region’s capital dominated by the largest party, the Kurdistan Democratic Party (KDP), but also Suleimaniya, where there are no U.S. troops and where the main party, the Patriotic Union of Kurdistan (PUK), enjoys better relations with Tehran than the KDP. To date, violence across the region has caused seventeen deaths and wounded 93 others, nineteen of them civilians. Iran has also struck Iranian Kurdish opposition groups residing in areas under PUK control. Though these groups are largely inactive, Tehran fears they might try to instigate an armed uprising in Kurdish areas of Iran with U.S. and Israeli assistance. 

Attacks by Iran and its Iraqi allies in the Kurdistan region are not new, but today the guardrails have fallen away entirely. In 2022, Iran fired missiles at the house of a Kurdish businessman in Erbil on the grounds that Mossad agents were at work there. A similar incident occurred in January 2024. Later the same year, the regional government sought to calm relations with Iran, dispatching Nechirvan Barzani to Tehran, where he met Supreme Leader Ali Khamenei. Though the visit helped allay tensions, Iraqi armed groups allied with Iran continued attacking oil and gas facilities in Iraqi Kurdistan run by U.S., Gulf Arab and Turkish companies. Today, with Iran retaliating against U.S. partners throughout the Middle East, the strikes in Kurdistan have expanded in frequency and scope, culminating in the attack on Barzani’s residence. Though bent on expelling the U.S. military from the region, Tehran and its Iraqi proxies may instead push the KDP and PUK to double down on their security partnership with the U.S., which the Kurdish parties believe still offers the best protection from future threats.

In political terms, the crisis is sharpening longstanding tensions between Erbil and Baghdad. The federal government has done little to stop the attacks beyond establishing investigative committees to identify the perpetrators. Kurdish authorities accuse the federal government of negligence, while the Iran-linked armed groups portray Erbil as helping the U.S. bomb Iran. These frictions have exacerbated squabbles between Baghdad and Erbil over shares of the national budget and other matters. 

The war’s economic fallout could prove more destabilising for Iraq than the fighting itself. Iran’s closure of the Strait of Hormuz has forced a halt to most oil production in the fields around Basra, which account for the lion’s share of Iraq’s exports, approximately 3.3 million barrels per day (bpd). Attacks in the Kurdistan region removed an additional 200,000 bpd from the market. At present, Iraq’s only active exports come from the Kirkuk fields in the north, amounting to roughly 300,000 bpd through the Iraq-Türkiye pipeline. Iran has granted Iraq an exemption to export oil through the strait, but continuous access for its tankers is hardly guaranteed, particularly following President Trump’s order for a U.S. naval blockade of the waterway’s south-eastern reaches.

Because oil revenues comprise around 90 per cent of government income, any prolonged disruption will gravely undermine Iraq’s fiscal stability and its ability to pay public-sector salaries in the medium term. To bridge the gap, the government may need to resort to domestic borrowing as well as to increasing its foreign debt burden.

The conflict is also affecting Iraq’s electricity grid, which relies heavily on gas imports from Iran. These supplies were halted following an Israeli strike on Iran’s South Pars gas field on 18 March. If disruptions persist through the scorching summer months, public frustration with power cuts is likely to intensify. Iraqis are already experiencing rising food prices, as imports of agricultural and other goods from Iran have come nearly to a standstill.

The country’s limited oil export routes and dependence on Iranian gas highlight the need for Iraq to diversify its economy, but that has now become more difficult to achieve. In the past, Iran-aligned armed groups and political factions have meddled with government attempts to pursue alternative export routes that would lessen Iraq’s reliance on Iran. Political pressure and threats have delayed development of a Basra-to-Aqaba oil pipeline through Jordan, for example. Most recently, the Iran-linked groups objected to the government’s trucking of oil to Syria. 

Escalating attacks by these armed groups on Iraq’s neighbours risk further isolating the country. After the war ends, these countries, remembering the volleys of drones and rockets, may decline to pursue joint ventures with Baghdad. Likewise, the Iran-linked Hashd factions’ activity may deter foreign investors, who had begun to view Iraq as a more stable partner. What with the shrinking diplomatic space to balance between Iran and the U.S., the prospect of ethno-sectarian recriminations and mounting fiscal volatility, the war presages a precarious future for Iraq.