While politicians fight over who gets to be president, Iraq's economic machinery keeps grinding forward. Here's what's actually happening beneath the chaos.
Iraq's government formation process has been completely paralysed for 84 days. No president elected. No prime minister confirmed. The Coordination Framework is now fighting itself internally. The political system appears completely broken.
And yet Iraq's economy is carrying on regardless.
This paradox reveals something important about how economic fundamentals actually develop — and it's not always tied to the political timeline that dominates headlines.
The Politics: Complete Gridlock
Let's be clear about how stuck Iraq actually is. Parliament has failed three times to elect a president. The two main Kurdish parties can't agree on a candidate. The Coordination Framework can't agree on whether to stick with Nouri al-Maliki despite Trump's threats. There's no new date set for another attempt.
The constitutional process is 24 days past deadline with no resolution in sight.
Meanwhile, the Coordination Framework — the Shia coalition that's supposed to be forming the government — is now engaged in an open power struggle between al-Maliki and Qais al-Khazali. Internal coordination has weakened. Separate media messaging channels are operating among factions that once acted in unison.
It's a mess.
The Economy: Actually Moving Forward
But here's what's simultaneously happening while politicians bicker:
Banking Sector Reforms Continue
The Central Bank of Iraq launched its National Financial Inclusion Strategy 2025-2029 in June 2025. State-owned bank restructuring is underway, with a new entity forming that will have minority government ownership. Digital payments regulation from 2024 is being implemented across the system.
Bank accounts increased by 14 per cent between 2022 and 2023 as financial inclusion accelerates. Anti-money laundering and counter-terrorism financing compliance is improving under US Treasury pressure.
None of this requires parliamentary approval. The CBI operates independently, and technocrats continue executing reforms regardless of who's sitting in the prime minister's office.
Infrastructure Projects Moving
The Grand Faw Port is expected to become operational in 2026, with planned capacity exceeding 55 million tons of cargo annually. This is the centrepiece of Iraq's Development Road Project — a strategic transport corridor linking the Gulf to Europe via Turkey.
A new LNG receiving and regasification terminal is also coming online in 2026, which could help Iraq reduce dependence on erratic natural gas imports from Iran.
China-backed school construction has already delivered 790 schools toward a 1,000-school target, with additional completions scheduled for 2025. Multiple Baghdad bridge projects are underway — Abu Nuwas, the second Al-Jadiriya bridge, and the Krayat bridge.
These are all projects with existing contracts, secured financing, and operational teams executing delivery schedules. Government formation paralysis doesn't stop bulldozers.
Oil Sector Investment Active
BP is advancing terms to redevelop the Kirkuk field while maintaining production at Rumaila. Chevron signed a new exploration agreement in August 2025. TotalEnergies' $27 billion Gas Growth Integrated Project continues moving forward, aimed at boosting gas production, power generation, and renewables.
International oil companies have long-term service contracts. They don't pause operations because parliament can't elect a president.
Macroeconomic Stability Maintained
Iraq's inflation remains at historic lows — the lowest in the Middle East region, according to CBI reporting. Foreign reserves stand at $95-97 billion, providing 13 months of import coverage. The exchange rate remains stable despite the political chaos.
Monetary policy continues functioning. Fiscal management continues. The caretaker government has limited political authority but full operational authority for economic management.
Why This Matters for Economic Fundamentals
This disconnect between political paralysis and economic progress reveals something crucial: economic institutions can be more resilient than political ones.
Iraq's caretaker government demonstrates this principle. Prime Minister al-Sudani's administration has severely limited political authority — it can't pass new legislation, can't make major policy shifts, can't drive controversial reforms through parliament.
But it has complete operational authority for:
- Executing existing contracts and projects
- Managing day-to-day economic policy
- Maintaining monetary stability
- Continuing previously approved infrastructure development
- Implementing banking sector reforms
The technocrats running Iraq's economic institutions — the CBI, the Ministry of Oil, infrastructure project management offices — don't stop working because politicians are fighting.
This matters for understanding what actually shapes currency fundamentals over time.
What Shapes Currency Fundamentals
Currency strength over the long term is influenced by institutional capacity, economic diversification, fiscal sustainability, and monetary policy effectiveness — not by whether parliament can elect a president on schedule.
Iraq's current situation provides a useful case study:
Institutional Capacity: Banking sector modernisation continues. Digital payment infrastructure expands. Financial inclusion increases. Anti-money laundering compliance improves. These are all capacity-building measures that strengthen the financial system regardless of political timelines.
Economic Diversification: The Development Road Project, LNG terminal development, gas field expansion, and infrastructure buildout all represent moves away from pure oil dependency. These projects progress based on engineering timelines and contractor schedules, not parliamentary sessions.
Fiscal Sustainability: Foreign reserves remain strong. Inflation stays low. The CBI maintains effective monetary policy. Exchange rate stability holds. These fundamentals continue even during government formation paralysis.
Monetary Policy Effectiveness: The CBI operates independently and continues implementing its strategic plans without needing constant political direction. This institutional independence allows economic management to function even when politics are dysfunctional.
The counterintuitive insight: political paralysis might actually be beneficial in the short term because no new bad policies can be implemented, technocrats can focus on executing existing plans without political interference, and external reform pressure from institutions like the IMF and World Bank continues.
The Honest Limitations
This is a short-term phenomenon, not a sustainable model.
Prolonged government formation paralysis will eventually stall new policy initiatives. Major budget allocations require government approval. Structural reforms need legislative backing. Investor confidence erodes if uncertainty drags on too long.
The caretaker period works for implementing existing projects and continuing ongoing reforms. It doesn't work for launching major new initiatives or making strategic policy shifts.
Iraq will need a functioning government eventually. The question is whether the political system can get itself sorted before the economic momentum starts to slow.
What's Actually at Risk
The real danger isn't that Iraq's economy collapses during government formation paralysis. Infrastructure projects will keep progressing. Oil production will continue. The CBI will maintain stability.
The real danger is opportunity cost.
Every day without a functioning government is a day Iraq can't:
- Pass new economic legislation
- Approve major new infrastructure funding
- Make strategic policy adjustments
- Provide clarity for long-term investors
- Address emerging challenges that require political decisions
Economic momentum from existing projects can carry Iraq for months. But it can't carry it forever.
The Bottom Line
Iraq's political system is completely frozen. Parliament can't elect a president. The Coordination Framework is fighting itself. There's no timeline for resolution.
But Iraq's economy is grinding forward regardless. Banking reforms continue. Infrastructure projects progress. Oil sector investment stays active. Macroeconomic stability holds.
This disconnect reveals an important principle: economic fundamentals are built through institutional capacity and operational effectiveness, not political theater.
The caretaker government can't make bold new policy moves. But it can execute existing plans, maintain stability, and keep the machinery of economic management functioning.
That's not a long-term solution. But it's enough to keep Iraq's economic development trajectory moving while politicians sort themselves out.
The real test will be whether Iraq's political system can resolve its paralysis before economic momentum stalls — or whether the institutional resilience that's keeping things moving now will eventually run out of runway.
For now, the paradox holds: government frozen, economy moving.
Disclaimer: This content is for informational and educational purposes only and does not constitute financial advice. Currency and economic outcomes are subject to numerous variables, and readers should conduct their own research or consult qualified professionals.