Why Direct Funding from the U.S. Federal Reserve Is Becoming a Strategic Option
By: Sherzad Mamsani
President, Israel–Kurdistan Alliance Network and EastMed Strategic Studies Institute contributor
Iraq has entered yet another political deadlock following the elections of eleven November two thousand and twenty-five, with no new government formed to this day. Although governmental paralysis has become a structural feature of post-2003 Iraq, this time the crisis is shaped by deeper ideological, security, and geopolitical dynamics. Iran-backed militias are tightening their grip on state institutions before allowing any cabinet to emerge, while Washington — especially the U.S. Congress — is increasing pressure on Baghdad to curb Iranian influence, restrain militia expansion, and protect U.S. interests, including the stability of the Kurdistan Region.
In this environment, the Kurdistan Region once again becomes the primary victim, not because it is weak, but because it belongs to a different geopolitical axis: the axis of stability, Western partnership, and alignment with U.S. regional strategy. This is why Baghdad’s recurrent manipulation of the Kurdistan Region’s share of national oil revenues has resurfaced as a political tool rather than a fiscal dispute.
Militias and the Deliberate Delay of Government Formation
The prolonged delay in forming a government after the two thousand and twenty-five elections has a clear cause: the insistence of Iran-linked militias on securing their security, economic, and political dominance before any cabinet is approved. These groups are no longer marginal actors; they form an entrenched military–economic network that influences parliament, the Federal Supreme Court, the Central Bank, the Oil Ministry, and border crossings.
This deliberate paralysis also serves another goal: to pre-empt expected American pressure in early two thousand and twenty-six, particularly after calls within the U.S. Congress to condition future assistance to Iraq on restricting militia power, safeguarding the Kurdistan Region, and complying with the federal constitution.
Manipulating Kurdistan’s Oil Revenues: A Political Weapon
Baghdad repeatedly uses the Kurdistan Region’s financial entitlements as a bargaining chip. This occurs through:
•Delaying or withholding salary payments
•Imposing unrealistic conditions on oil deliveries
•Weaponizing the Federal Supreme Court to invalidate past agreements
Yet the core issue is not financial; it is political.
The central authority under Iranian influence does not want a successful Kurdish model to exist within Iraq. A functioning regional government, relative transparency, international partnerships, and Western investments all contradict the Iranian model of governance.
For this reason, restricting the Kurdistan Region’s revenues becomes an intentional method to weaken Kurdish society and undermine regional autonomy.
New American Restrictions: A Recalibration of Washington’s Iraq Strategy
Recent U.S. measures — particularly regarding dollar transfers, banking supervision, and enforcement actions against illicit financial networks — are not merely technical adjustments. They signal a strategic recalibration: the United States will not allow Iraq to drift fully and officially into the Iran-led axis.
And whenever Washington tightens its pressure, Baghdad often retaliates domestically by targeting the Kurdistan Region, viewing it as the easiest lever to pull without provoking direct international backlash.
Can the U.S. Federal Reserve Pay the Kurdistan Region Directly?
This question has gained traction in diplomatic and policy circles, especially as the militia state tightens its grip over Baghdad.
Technically speaking, yes.
The Iraqi Ministry of Finance maintains its sovereign oil-revenue account at the (Federal Reserve Bank of New York).
From this account, the Ministry can — in principle — authorize transfers to any domestic entity, including the Kurdistan Regional Government (KRG).
However, Baghdad refuses to authorize such transfers for one fundamental reason:
Iran-aligned political forces do not want any mechanism that stabilizes or empowers the Kurdistan Region, especially one that strengthens its strategic alignment with the United States.
Direct transfers would:
•Strengthen the Peshmerga
•Reduce the KRG’s dependence on Baghdad
•Enable long-term U.S.–Kurdish economic cooperation
•Transform Kurdistan into a successful, Western-oriented regional model — similar to Israel or the UAE
For Tehran and its proxies, this is unacceptable.
Thus, Baghdad serves as a political barrier preventing any direct international mechanism that could financially sustain the Kurdistan Region.
Kurdistan in the American Axis, Iraq in the Iranian Grip
The geopolitical divide is now unmistakable:
•The Kurdistan Region is a reliable U.S. partner in counterterrorism, energy cooperation, and regional stability.
•Baghdad’s political core remains dominated by the Iranian axis through militias, courts, economic networks, and shadow governance.
For Tehran and its clients, any political or economic success in Erbil represents a threat — not to Iraq, but to the Iranian project itself.
Conclusion: Direct Federal Reserve Funding May Soon Enter the Policy Debate
As the political crisis deepens, and as the U.S.–Iran confrontation intensifies within Iraq, the option of direct funding to the Kurdistan Region through the Federal Reserve systemmay increasingly appear on Washington’s strategic table — particularly if:
•Baghdad continues weaponizing public salaries
•Militia influence expands over state institutions
•Iranian control obstructs constitutional federalism
•The financial union between Baghdad and Erbil collapses in practice
At that point, U.S. policymakers may rightly ask:
Why should Iraq’s U.S.-supervised oil revenues be used to punish the only stable and pro-Western region within the country — the Kurdistan Region?
This question alone has the power to reshape future policy.