An explosion of joy ripped through Iraq when its football team won the Arabian Gulf Cup last month, sparking jubilant scenes across the country. It was a historic victory that was also an important show of soft power for the beleaguered nation.

Yet, just when it seemed that all the joy of the celebrations had settled, Iraq was back in the public eye once again thanks to its chronic power struggles, government dysfunction, rampant corruption, and deep economic troubles.

Moreover, Iraq is increasingly caught up in the geostrategic conflict pitting Iran against its Arab neighbours, the US, the West, and Israel. Fears are mounting that Iraq might be embroiled in escalations that could follow the suspected Israeli drone attacks against Iran last weekend.

Iraq took its first rocky steps towards stability when Mohamed Shia Al-Sudani was tasked with forming a new government in October following a year of turmoil centred on a political gridlock triggered by an acrimonious contest between the country’s rival factions.

Al-Sudani’s government soon faced multiple crises and discontent that had been festering for decades. As the beginning of his term in office fades, Al-Sudani’s future is now at stake and probably the security of the country too.

A local currency crunch has severely hit Iraq’s ailing economy as the Iraqi dinar has fallen by as much as 10 per cent against the dollar since Al-Sudani came to power. The plummeting currency and high inflation have provoked the public fury about the crisis.

Protesters marched through central Baghdad and in front of the Iraqi Central Bank last week, blaming political corruption for the new crisis. More protests are expected as the Iraqi dinar has continued to drop, reaching about 1,680 to the dollar on the streets this week.   

Experts blame the crunch of the local currency, which has caused the prices of food and imported goods to rise, on new measures imposed by the US Federal Reserve on Iraq as part of its policy to ensure that the US sanctions against Iran are upheld.

In an effort to comply with the US measures, Al-Sudani’s government has placed restrictions on money transfers to slow the process of dollar flows to Iran. However, this has created a backlog of foreign currency transactions and made Iraq’s economy reel.

Sniping within the Framework Alliance (FA) that brought him to power has also made Al-Sudani’s life more difficult, and the need to secure his premiership from tensions and power struggles has led him to be mortgaged to competing factions within the governing coalition.

Al-Sudani, an affiliate of former prime minister and former minister in his cabinet Nouri Al-Maliki, has been under pressure from his former boss. He has named many of Al-Maliki’s cronies as advisers and senior officials in his office, raising doubts about his government’s credentials.

More troubles loom for Al-Sudani’s government as the leaders of Iraq’s autonomous Kurdistan Region have protested against a decision by Iraq’s top court deeming Baghdad’s payment of the region’s financial entitlements illegal.

The court ruling came after a complaint made by two Shia lawmakers claiming that the payment of the Kurdistan Region’s financial entitlements by Baghdad violates the 2021 budget law.

The Kurdistan Regional Government (KRG) in Iraq condemned the ruling as “an unjust policy and antagonistic towards the Kurdistan Region.” Former KRG chairman and leader of the Kurdistan Democratic Party (KDP) Masoud Barzani slammed the court ruling as “chauvinistic.”

The Iraqi federal budget has been a point of contention between the Erbil and Baghdad governments for several years, especially after the KRG moved to impose its control over energy resources and began selling its oil independently abroad.     

A month into the new year, Iraq’s parliament has not passed the country’s 2023 budget, and the two sides remain in disagreement over allocations made to the KRG, which in turn remains mired in disputes between the KDP and its rivals.

There are also signs that powerful Iraqi Shia cleric Muqtada Al-Sadr may return to politics, something that would be the FA’s worst nightmare and could put Al-Sudani’s government at a crossroads.

Following months of silence, Al-Sadr called on his supporters to hold unified Friday prayers in Baghdad and a number of other cities last week. The prayers were preceded by speeches written by Al-Sadr, who has been linking the ritual to political messages that are interpreted as heralding a comeback.

Another major disruption to Al-Sudani’s government could emerge from Iraq’s pro-Iran militias, representatives of whose political wings are participating in his cabinet. The factions are acting as a Trojan horse to serve Tehran’s agenda while deepening Iraq’s political crisis.

The groups have been critical of Al-Sudani for defending the presence of US troops in the country and setting no timetable for their withdrawal. In an interview with the US newspaper the Wall Street Journal last month, Al-Sudani said that the US forces were still needed in order to help in the fight against the Islamic State (IS) group in Iraq.

One militia group, Al-Wartheen, has claimed responsibility for three drone attacks targeting a US base in Tanaf on the Iraqi-Syrian border on 20 January that it said were carried out to avenge the killing of Iranian military commander Qassem Suleimani by a US air strike in Iraq in 2020.

The operations were a sign that Tehran-backed militias in Iraq that are believed to be in possession of Iranian-made drones are ready to resume their attacks on US targets.

The US is also clearly stepping up its pressure on Al-Sudani to impose tighter controls on international financial transactions in order to halt the siphoning of dollars to the Islamic Republic.

Washington has named a top diplomat to be its Special Presidential Coordinator for Global Infrastructure and Energy Security in Iraq after he emerged as a key interlocutor on Iran-related dealings.

The new envoy, Amos Hochstein, is an old US face in Iraq who recently succeeded in facilitating a “historic” border-demarcation deal between Lebanon and Israel that would allow Lebanon to start gas exploration in the Mediterranean.

The deal was made possible after the US and its allies exerted enormous pressure on Lebanon’s financial institutions to stop them dealing with Iran. It was green-lighted by the pro-Iran Lebanese group Hizbullah, which has also implicitly agreed to stop its operations on the border with Israel.

Hochstein, who visited Baghdad recently with White House Coordinator for the Middle East and North Africa Brett McGurk, may be tasked with trying to contain Iraq’s Shia militias through a similar agreement.

Washington is also coordinating its efforts in Iraq with its allies in the G-7 group of countries, which have common ground on Iran. Last week, ambassadors of the seven powerful countries in Iraq met at Japanese envoy in Baghdad Futoshi Matsumoto’s residence to discuss how their governments can best support Iraq.

The meeting came after Al-Sudani made a brief visit to Berlin and Paris, where he was encouraged by German Chancellor Olaf Scholz and French President Emmanuel Macron to try harder to disengage Iraq from Iran.

Al-Sudani is reportedly to visit Washington for a major summit meeting with US President Joe Biden if he displays more signs of curtailing Iran’s influence in Iraq. US Secretary of State Antony Blinken urged in a TV interview on Saturday that Al-Sudani’s government should “continue to be fully reintegrated into the larger Arab community.”

Amid heightened regional tensions, bomb-carrying drones targeted an Iranian defence factory in the central Iranian city of Isfahan on Saturday. The Wall Street Journal quoted US officials and other sources as saying Israel had carried out the drone strikes targeting the munitions factory.

Later, unidentified aircraft struck a convoy of Iranian trucks carrying missiles, oil, and ammunition at a crossing on the Syria-Iraq border where frequent Iranian military activity has been reported. Israel has admitted conducting sorties against Iran-backed groups attempting to gain a foothold in Syria in the past.

Iraq is reemerging as a battleground for Iran and the US and its allies as the deadlock remains over Iran’s rising influence in the country and the confrontational behaviour of its proxies in the region.

All eyes are now on Al-Sudani and whether he can cure his country’s long-standing ills by cutting the umbilical cord that makes Iran dependent on Iraq. It is high time that this took place, and the next few weeks will show what Al-Sudani stands for.