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Iraq, long characterized as a theater of regional and international competition, is rapidly evolving into a strategic epicenter for Western policy in the Middle East. The current administration in Baghdad is asserting a form of conditional sovereignty, balancing complex relationships with regional powers while simultaneously deepening security and economic ties with the US, China, and European partners.

This reorientation is not incidental but the product of deliberate statecraft, economic necessity, and a recalculated foreign alignment under Prime Minister Mohammed Shia Al-Sudani, who was ranked by CEOWorld magazine this year as one of the “Most Powerful Political Leaders Shaping the World.”

With a population exceeding 40 million and proven oil reserves of more than 140 billion barrels, Iraq’s demographic and economic significance is substantial. Yet its actual strategic value extends beyond hydrocarbons. It lies in the nation’s potential to anchor a more stable regional order, provided it can successfully navigate its own internal contradictions and external pressures.

For now, Al-Sudani’s government in Baghdad has achieved measurable gains in efforts to stabilize the nation’s security environment. Attacks by extremist groups have plummeted to a mere five documented incidents this year, a figure that belies the complex and persistent threat posed by Iran-backed militias that operate with significant autonomy.

In a definitive assertion of state authority, the prime minister this month dismissed two brigade commanders from Kataib Hezbollah following a lethal clash at a government office. This move, supported by a rare public mandate from the country’s supreme Shiite religious authority, signaled an unprecedented willingness to challenge armed factions that wield significant influence and possess large arsenals.

Albeit long overdue, this recalibration of civil-military relations aligns with a concerted, internationally supported effort to professionalize a security sector historically compromised by parallel command structures. However, this is all happening amid intense legislative pressure to codify these very militias into law, in a move that could formalize external influences that view Iraqi sovereignty as antithetical to their interests.

Meanwhile, Al-Sudani’s government has made significant progress on the economy and given credible commitments to structural reforms. However, Iraq remains crippled by a debilitating energy paradox that is key to its vulnerability to external coercion. The country’s power grid continues to suffer catastrophic losses, for example shedding 5,000 megawatts in May alone as a result of politically motivated interruptions to

Iranian gas supplies, a dependency that costs billions each year and leaves nearly a third of the Iraqi population prone to recurrent blackouts.

The fragility has led to a strategic push for energy autonomy, alongside urgent upgrades to electricity distribution, where losses reached 55 percent in 2024 due to theft and inefficiency. Central to this effort is the Gas Growth Integrated Project, a $27 billion venture designed to capture 600 million cubic feet of associated gas from southern oil fields each day; an initial 50 million cubic feet processing facility is already under construction. Simultaneously, Baghdad is working to deploy a floating liquefied natural gas import terminal by next year to circumvent terrestrial pipelines and geopolitical blackmail.

Such projects are more than simply technical fixes, they represent a fundamental recalibration of Iraq’s political sovereignty.

Moreover, Baghdad is complementing these efforts with tangible fiscal measures, including better-targeted subsidies and efforts to strengthen tax administration. Despite financing limitations and a subdued non-oil growth projection for this year, Iraq retains considerable external buffers, with reserves of $100 billion covering more than 12 months of imports.

These reforms, coupled with anticorruption initiatives and digitalization in the financial sector, reflect holistic, Iraq-centered approaches to the reduction of external vulnerabilities. The goal of these measures is to ensure Iraq transforms its hard-fought economic sovereignty into sustained prosperity.

Iraq is gradually becoming a center of gravity, one in which US and European interests can find expression through economic partnerships and diplomatic engagement rather than military presence alone.

Hafed Al-Ghwell

Meanwhile, the upcoming parliamentary elections in November reveal both the procedural maturation and stubborn structural vulnerabilities of Iraq’s political order.

For instance, electoral authorities have disqualified more than 100 candidates with criminal records, including former high-ranking officials, demonstrating a commitment to the enforcement of legal standards. The decision to proceed with the elections, despite threats from armed factions and internal discord, reflects a strengthening of state institutions compared with the protracted crises that followed the 2018 and 2021 elections.

This democratic exercise, however imperfect, offers a channel for political competition that does not rely solely on coercion or external patronage.

Regionally, Iraq is repositioning itself as a conduit for cooperation rather than conflict. Talks continue for the revival of a dormant oil pipeline connection to the Mediterranean through Syria that could carry up to 2.25 million barrels a day, thereby providing Baghdad with alternative export routes and reducing its dependence on southern terminals. This project, if realized, would integrate Iraq more closely with Levantine economies and enhance its strategic value to European energy security.

Simultaneously, Baghdad is engaged in trilateral water negotiations with Turkiye and Syria, seeking to modernize outdated agreements and better manage the flow of the Euphrates River.

These initiatives reveal a pragmatic approach to regional diplomacy, one that seeks to leverage geography for economic gain while avoiding entanglements in ideological struggles.

On the global stage, Iraq’s relationship with the US is slowly transforming from a security-centric partnership toward a more multifaceted engagement. The reduction of American troop numbers has allowed the relationship to shed some of its paternalistic character, creating room for cooperation in energy, trade and governance. It is a shift symbolic of a long-delayed redefinition: where once the relationship was dominated by boots on the ground, lethal aid, and counterterrorism, it now increasingly involves technical assistance, private investment, and diplomatic support for Iraqi sovereignty.

Even Europe is cognizant of Iraq’s brimming potential. European energy companies, such as TotalEnergies, are leading key gas-capture projects, and diplomatic engagement has intensified around issues of governance, climate, and economic reform.

Brussels sees in Iraq not only a potential energy partner but also a stabilizing force in a volatile region. Iraq’s willingness to engage on issues such as water management, electricity grid modernization, and judicial reform creates opportunities for soft-power influence that complement US efforts. This European interest provides Baghdad with additional options and reduces its vulnerability to coercion by any single external power.

Overall, Iraq’s emergence as a regional hub remains contingent on its ability to navigate formidable obstacles. Corruption, institutional weaknesses, and the lingering influence of armed factions continue to pose risks to stability and reform. Moreover, the government’s strategy of balance requires constant recalibration, as regional tensions could easily spill over and disrupt careful diplomatic arrangements.

Nevertheless, the direction of travel is clear: Iraq is gradually becoming a center of gravity in the Middle East, one in which US and European interests can find expression through economic partnerships and diplomatic engagement rather than military presence alone.

This transformation, if it can be sustained, could make Iraq the most consequential emergent regional partner for the West over the coming decade.

• Hafed Al-Ghwell is a senior fellow and executive director of the North Africa Initiative at the Foreign Policy Institute of the Johns Hopkins University School of Advanced International Studies in Washington, DC. X: @HafedAlGhwell