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Iranian officials continue to highlight the accomplishments of President Masoud Pezeshkian'sĚývisit to Iraq earlier in September.

The three-day tour resulted in the formulation of a comprehensive strategic cooperation document between the two countries, along with 14 other commercial and economic agreements.

While it may appear that Iran, through its influence over Iraq's government, parliament, and Shia power structures, especially the Popular Mobilisation Forces (PMF), has turned the neighbouring country into its own backyard, both nations face significant challenges in expanding their relations.

The first issue is the widespread opposition within Iraq to the growing influence of Iran and the Islamic Revolutionary Guard Corps (IRGC).

Demonstrations, protests, and local tensions frequently arise, with opposition coming from a wide array of groups, including civil society, feminists, secularists, Shias outside the power structure, Sunnis, Kurds, and other minorities. The presence of Iranian-affiliated militias, like the PMF, in Iraq's political landscape has only fuelled this opposition.

A 2020 survey revealed that 85% of Iraqis viewed Iran's influence as destructive - a sentiment likely heightened by recent issues like the ongoing Shatt al-Arab waterway dispute, Iranian missile attacks on Kurdish opposition camps in Iraq, and other military activities involving Iran's proxy groups.

Shukriya Bradost, a Middle East researcher, attributes the growing resentment among Iraqis towards Iran to its backing of militias that threaten regional stability.

“Inside Iraq, economic and administrative corruption by Iranian-backed militias has strained relations between the countries,” she told °®Âţµş.

“The dissatisfaction of Iraqi youth with Iran’s interference, especially after the 2019 Tishreen movement protests, has raised concerns in successive Iraqi governments, particularly under Prime Minister Sudani, about the growing wave of opposition to closer ties with Iran."

The second challenge is the deadlock over economic matters, particularly Iraq's debt to Iran, which stands at an estimated $11 billion for gas and electricity imports.

While Pezeshkian’s visit aimed to secure repayment in alternative currencies, Iraq has kept these funds in the TBI Bank due to US sanctions and hopes to settle the debt through exports of non-sanctioned goods, such as medicine and food.

Iran’s Deputy Oil Minister Saeed Tavakoli recently claimed that Iraq is now paying in cash for its gas purchases, but no definitive resolution was reached during Pezeshkian’s visit. Instead, it seemed more of a propaganda exercise as no joint statement was issued.

Meanwhile, Iraq appears to be shifting its focus to other regional players, particularly Turkey, which is increasingly investing in Iraq. "Commercial agreements between Iraq and Iran are more symbolic, given US scrutiny over Iraqi assets and the monitoring of its banks to prevent the circumvention of sanctions," Bradost told TNA.

The third issue stems from Iran’s strained relationships with regional powers and the United States. Iraq, on the other hand, seeks to deepen its ties with the US.

"Inside Iraq, economic and administrative corruption by Iranian-backed militias has strained relations between the countries"

In 2023, trade between Iraq and Iran was valued at around $12 billion, but Iraq's trade with the US is growing, having reached a similar level last year. While trade with Iraq is crucial for Iran as a means of importing essential goods and penetrating regional markets, one of the key proposals from Pezeshkian’s team - marketing Iranian products under Iraqi packaging for regional distribution - seems to have received a lukewarm reception.

Before the imposition of US sanctions, Iran's trade with Europe surpassed its trade with Iraq, but the situation has since reversed.

"Iran no longer holds sway over Iraq’s foreign policy, though it hopes to leverage Iraq’s influence in the region for its own benefit,” Mohanad Aljanabi, an assistant professor of international relations, told TNA.

“While Iraq has US waivers to import Iranian gas and electricity, a future US administration may well revoke this exemption."

Iraq also serves as a diplomatic gateway for Iran’s broader regional and international ambitions. As Aljanabi, an Iraqi professor in Baghdad, explains. “Relations with Iran are crucial for Iraq, given both the influential groups tied to Iran and the economic dependencies that Iraq cannot ignore."

Nonetheless, Iraq's economic growth in recent years has outpaced Iran's, reflecting increasing foreign investment and stability in the Iraqi market. Meanwhile, Iran, plagued by domestic challenges, regional competition, and US sanctions, has limited access to these emerging opportunities.

The only significant exception is Iraq’s continued reliance on Iranian gas and electricity, which still accounts for about 40% of Iraq’s power supply - even as Iranian citizens face rolling blackouts due to insufficient power plant capacity.

Pezeshkian had hoped to secure agreements during his visit that would expand cross-border trade zones, increase bilateral trade to $20 billion, address shared water issues, and boost religious tourism.

However, despite calling Iraq his "second home," he appears to have returned to Iran empty-handed.

Iraq’s own domestic and international constraints seem to limit its ability to accommodate Iran’s broader ambitions.

Omid Habibinia is an Iranian senior journalist and political communications researcher based in London. He has worked with numerous Persian-language and international media outlets, including BBC World, Iran International TV, France 24, Al Arabiya, MBC, and Your Middle East.

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