The United States has maintained effective custody of Iraq’s oil revenues since the 2003 invasion by placing those funds under the care of the Federal Reserve Bank of New York. The arrangement, established in the immediate post-invasion period, continues to shape Baghdad’s economic options and gives Washington a durable source of leverage over Iraqi fiscal and political choices.
Origins and structure
Following the 2003 invasion, the U.S.-led Coalition Provisional Authority (CPA) created the Development Fund for Iraq - commonly abbreviated as the DFI - and had the account held at the New York Fed. The fund was intended as a central repository for income from Iraqi oil sales, earmarked for reconstruction and national development. A further purpose of the vehicle was to shield those revenues from potential legal claims connected to the previous regime.
Then-president George W. Bush signed an executive order formalizing the mechanism, and that executive order has been renewed by successive U.S. presidents. Over time the DFI transitioned into an account of the Central Bank of Iraq (CBI) at the New York Federal Reserve. That custody arrangement remains active today.
Why custody at the New York Fed matters
Oil receipts constitute the dominant component of Iraq’s government funding, making up about 90% of the state budget. Because those dollars are held in New York, Washington can exert influence over Baghdad by controlling access to that pool of foreign currency. In practical terms, decisions taken in Washington about access and restrictions can have immediate ramifications for Iraq’s ability to meet import needs and fund government operations.
An illustrative moment came in 2020, when Iraqi leaders asked U.S. forces to leave the country. Reports indicate that the United States warned it could curtail Iraq’s access to funds at the New York Fed - a threat that preceded Baghdad reversing or softening its position. While Iraqi authorities have gradually reclaimed more control over domestic financial policy since the early occupation years, the example underlines how custody of oil dollars can translate into tangible leverage.
Why the arrangement endures
Officials in Baghdad who spoke on the condition of anonymity told Reuters that the enduring structure has provided an anchor for financial stability. They argue the setup reassures international partners about the stewardship of oil income, facilitates reliable access to U.S. dollars that Iraq needs for trade and imports, and protects state funds from external claims, lawsuits and creditor actions.
Those officials also say the arrangement helps cushion Iraq from sudden financial shocks and supports exchange-rate stability. In their telling, maintaining the New York custody relationship has been part of a wider effort to strengthen domestic financial institutions while incrementally increasing economic sovereignty.
Security, sanctions and internal politics
The arrangement also factors into Iraq’s internal political dynamics. Some Iraq-based groups that align with Iran have pushed for fewer restrictions on dollar access. By contrast, the custody mechanism allows Baghdad - and by extension U.S. policy - to limit flows of dollars to entities Washington views as problematic. According to the reporting, the U.S. last year imposed sanctions on Iraqi banks and individuals it accused of laundering money for Iran.
Economic impacts inside Iraq
Limits on the formal supply of U.S. dollars into Iraq have encouraged the growth of an informal parallel market for dollars. That market generates a spread between the official exchange rate set by the central bank and the rate on the black market. The difference reflects a risk premium for participants who transact outside the formal, regulated financial system.
For years the CBI managed dollar availability using a system of daily auctions - known within the central bank as the foreign currency window - where private banks and licensed exchange houses could bid to purchase U.S. dollars in exchange for Iraqi dinars. This auction mechanism was a principal channel for supplying dollars to the economy.
Recent shifts and current status
Iraq’s oil income continues to be held at the Federal Reserve Bank of New York under the account arrangement with the Central Bank of Iraq. Under pressure tied to concerns about the diversion of funds to sanctioned actors - particularly flows linked to Iran - Iraq formally ended the auction system at the start of 2025. Officials framed the move as part of a broader crackdown on alleged siphoning of dollars to sanctioned entities.
The custody arrangement, the authorities say, plays competing roles: it gives external assurance about the handling of oil revenues and access to dollars, while also functioning as a lever in geopolitical and domestic security clashes. Baghdad’s leaders have repeatedly balanced the desire for full monetary sovereignty against the practical benefits of an international custody structure that many argue bolsters stability.
Bottom line
The custody of Iraqi oil revenues at the New York Fed, a framework born in the aftermath of the 2003 invasion and sustained through successive U.S. administrations, remains a central feature of Iraq’s fiscal architecture. It underpins dollar availability and exchange-rate management, provides legal protections for state assets, and creates a channel through which U.S. policy decisions can affect Baghdad’s economic and political latitude.