Iraq — Fragile State and the Iran Shadow: Strategic Assessment

Bottom Line Up Front

Assessment (high confidence). Iraq in May 2026 is a structurally fragile state operating under three simultaneous pressures: a contested government formation that pushed Prime Minister Mohammed Shia al-Sudani out of contention and elevated Ali Faleh al-Zaidi as PM-designate; an Iran-aligned PMU ecosystem that retains kinetic capacity to attack US and Israeli targets despite a fragile ceasefire; and a residual Islamic State insurgency at historically low operational tempo but facing a structural inflection as 7,000 IS combatants are repatriated from Syrian custody to Iraqi prisons. The transition of the US-led Operation Inherent Resolve mission — Baghdad and Ain al-Asad handed back in September 2025, with residual presence in Erbil through end-2026 — has not produced the strategic disengagement Tehran and the IRGC-Quds Force sought. It has instead created a narrower, more legible target set and a more autonomous Iraqi security architecture in which Iran’s leverage is concentrated in the PMU command structure.

Assessment (moderate confidence). Iraq’s trajectory through Q3 2026 is dominated by three vectors: (1) the formation and durability of the al-Zaidi cabinet and whether it constitutes a continuation of Coordination Framework dominance or a genuine reset; (2) the post-February 2026 US–Israel–Iran kinetic exchange and whether the current ceasefire holds against PMU pressure; (3) the Baghdad–Erbil oil pipeline impasse and the looming expiry of the Iraq–Turkey Pipeline (ITP) treaty by July 2026, which compounds fiscal stress at a moment of weak central authority.

Strategic Background

Fact. The 2003 US-led invasion dismantled Ba’athist state institutions and triggered a structural sectarianisation of Iraqi politics through the muhasasa (ethno-sectarian apportionment) system. The de-Ba’athification orders and disbandment of the Iraqi Army produced a Sunni insurgency that evolved through al-Qaeda in Iraq (AQI) into the Islamic State of Iraq (ISI) and ultimately into Islamic State (IS/ISIS), which seized Mosul in June 2014.

Fact. The territorial caliphate was defeated in Iraq by December 2017 through a coalition of Iraqi Security Forces (ISF), the Hashd al-Shaabi), Kurdish Peshmerga, and the US-led Combined Joint Task Force – Operation Inherent Resolve (CJTF-OIR). The PMU was formally chartered as an auxiliary to the Iraqi state in 2016 (Law No. 40), placing Iran-aligned brigades on government payroll while preserving their operational autonomy.

Assessment (high confidence). The post-2017 settlement never resolved three foundational fractures: (1) the Sunni periphery’s lack of credible political representation and reconstruction; (2) the Kurdistan Regional Government (KRG) status and disputed territories under Article 140; (3) the dual-loyalty problem of PMU brigades whose chain of command runs through both the Iraqi Prime Minister’s office and the IRGC-Quds Force. These fractures define the operating environment for every subsequent crisis.

The PMU as State-within-State

Fact. The PMU comprises roughly 230,000 personnel across 67 brigades, drawing salaries from the Iraqi federal budget. Within this structure, an Iran-aligned core — Kataib Hezbollah (KH), Asaib Ahl al-Haq (AAH), Harakat Hezbollah al-Nujaba (HHN), and Kataib Sayyid al-Shuhada (KSS) — operates under the political-military umbrella of the Islamic Resistance in Iraq (IRI), the rebranded coordination platform that emerged in October 2023.

Assessment (high confidence). The PMU functions as a parallel security structure with three institutional features that distinguish it from a conventional auxiliary force: (1) independent intelligence collection and targeting capacity; (2) economic enterprises (border crossings, real estate, commodity trading) that generate non-budget revenue; (3) direct command linkages to Tehran that bypass the Iraqi national security architecture. PM Sudani’s effort through 2025 to “rein in” the IRI factions — pressing for disarmament and conversion to political activity — produced rhetorical compliance but no structural change. Kataib Hezbollah remains the principal kinetic actor and the most autonomous from Iraqi state authority.

Assessment (moderate confidence). The al-Zaidi nomination, brokered by the Coordination Framework after Sudani and former PM Nouri al-Maliki stepped aside, signals that the IRI-aligned wing of the Framework retains veto power over executive composition. This reduces the probability that the next government will pursue meaningful PMU reform; conversely, the post-February 2026 ceasefire and US pressure create incentives for at least cosmetic decoupling between the federal state and the IRI brigades.

Gap. The internal cohesion of the IRI under sustained external pressure remains opaque. KH, AAH, and HHN have demonstrated coordinated targeting in past escalations, but the kinetic exchange of February–March 2026 may have exposed factional differences over risk tolerance. Open-source visibility into post-ceasefire command dynamics is limited.

ISIS Residual Threat

Fact. UN reporting submitted to the Security Council in 2025 assessed Islamic State in Iraq as “at its weakest”, with claimed attacks down 94% from 2019 baseline. In 2025, fewer than five attacks were claimed by IS in Iraq proper, and the group’s second-in-command Abdallah “Abu Khadijah” Makki Muslih al-Rifai was killed by US forces in Anbar on 13 March 2025. At least 90 IS fighters were killed in Iraqi security operations during 2025.

Fact. In January 2026, approximately 7,000 IS combatants were transferred from Syrian Democratic Forces (SDF) custody at al-Hol and adjacent facilities to Iraqi government control following the post-Assad reconfiguration in Syria. This significantly increases the population in the Iraqi prison system, which historically has functioned as a radicalisation vector and a source of post-release operatives.

Assessment (high confidence). The current low operational tempo in Iraq is a function of three factors: (1) sustained ISF and CJTF-OIR pressure on senior cadre and logistics; (2) the loss of Syrian rear-area sanctuary in Deir ez-Zor and the middle Euphrates valley; (3) competition from the IRI for ungoverned-space dominance, which limits IS freedom of movement in mixed-population areas. The threat is suppressed, not extinguished.

Assessment (moderate confidence). The residual IS network retains operational sanctuaries in the Hamrin Mountains, the Makhoul range, the trans-Anbar desert corridor toward Syria, and pockets of disputed territory between Salah ad-Din and Diyala. Attack tempo increased in April–May 2025 coinciding with the US drawdown from 2,000 to approximately 700 personnel, which is a probabilistic indicator that further reductions create permissive conditions for tempo recovery. The 7,000-prisoner transfer is the single most significant medium-term variable for IS regeneration.

Kurdish Autonomy Fault Lines

Fact. The Kurdistan Regional Government and Baghdad operate under an unresolved oil revenue and pipeline dispute. The Iraq–Turkey Pipeline (ITP) has been intermittently shut since March 2023 following an International Chamber of Commerce arbitration ruling against Turkey. KRG resumption of exports has been gated by federal customs and budget disputes; PM Masrour Barzani announced in March 2026 that the KRG would allow oil to flow through the regional pipeline “as soon as possible” pending Baghdad’s lifting of January 2026 customs measures.

Fact. The ITP treaty between Iraq and Turkey expires in July 2026 absent renegotiation. Sinjar (Shingal) remains a disputed territory under Article 140 with overlapping claims from Baghdad, Erbil, the PMU’s 30th Brigade (Yazidi-affiliated, but Iran-aligned), and the PKK-linked Sinjar Resistance Units (YBŞ). Turkey conducts regular kinetic operations against PKK infrastructure in Sinjar, the Qandil Mountains, and Makhmour.

Assessment (high confidence). The Baghdad–Erbil relationship is structurally adversarial despite tactical cooperation against IS. The KRG’s fiscal position is degraded by the export shutdown and dependency on federal salary transfers, which functions as a coercive lever from Baghdad. The Coordination Framework has used this leverage to constrain KRG autonomy in foreign policy, energy contracting, and the disputed territories file.

Assessment (moderate confidence). Sinjar is the highest-probability flashpoint within the Kurdish file because it sits at the intersection of four hostile actor networks (PMU, PKK/YBŞ, Turkish armed forces, KRG Peshmerga) and remains a Yazidi displacement zone with unresolved post-genocide accountability. A Turkish escalation against PKK infrastructure following an attack on Turkish forces would likely draw PMU reaction and risk Baghdad–Ankara rupture.

US Withdrawal Negotiations

Fact. The US–Iraq Higher Military Commission concluded in September 2024 that the CJTF-OIR mission would end in two phases: (1) coalition presence at Baghdad headquarters and Ain al-Asad Air Base ended by September 2025; (2) residual coalition presence in Erbil continues through approximately end-2026 to support counter-ISIS operations in Syria. US force levels declined from approximately 2,500 in early 2024 to approximately 700 by mid-2025, with further drawdown planned.

Fact. Following the 28 February 2026 onset of US and Israeli kinetic action against Iran, IRI factions executed hundreds of drone and missile attacks against US diplomatic posts and forces in Iraq and Syria. The Baghdad embassy compound, Erbil air base, and forward positions in eastern Syria were repeatedly targeted. The current ceasefire — established in March 2026 — is fragile and unpoliced by any binding mechanism.

Assessment (high confidence). The post-September 2025 footprint is operationally narrower but politically more legible: with Baghdad and Ain al-Asad off the target list, IRI attacks concentrate on Erbil and Syria-side positions, reducing diplomatic friction with the federal government. This functionally separates the US security relationship from Iraqi sovereignty politics and consolidates it as a KRG-centric arrangement, which is itself a fragility multiplier given Baghdad–Erbil tensions.

Assessment (moderate confidence). A complete US withdrawal in 2027 — if it occurs on the announced timeline — removes a counter-IS enabler (ISR, precision fires, advisory) without an equivalent Iraqi or coalition replacement. The probability of IS tempo recovery in the 12–24 months post-withdrawal is elevated, conditional on the prison-population variable.

Escalation Scenarios

Scenario A — Managed Fragility (most likely, 12-month horizon). The al-Zaidi government forms within Q2 2026 with Coordination Framework dominance. The Iran ceasefire holds with intermittent low-grade harassment of US positions in Erbil and Syria. KRG–Baghdad oil dispute is resolved through a renewed transitional arrangement; ITP treaty is extended in modified form. IS tempo creeps upward in rural Diyala–Salah ad-Din–Anbar but does not produce strategic-level incidents. PMU reform remains rhetorical.

Scenario B — Sectarian Re-escalation (moderate probability). Ceasefire breaks down following an Israeli or US strike on Iranian assets; IRI executes coordinated escalation against US positions and possibly Gulf-state targets transiting Iraqi airspace. Federal government either acquiesces or actively aligns with IRI, accelerating KRG fiscal stress and autonomy claims. IS exploits security force preoccupation to recover tempo, particularly in disputed territories. Sinjar becomes a multi-actor kinetic theatre.

Scenario C — Structural Rupture (low probability, high impact). Combination of failed government formation, ITP expiry without replacement, and a major IS incident (mass-casualty urban attack or prison break) produces cascading institutional failure. KRG declares de facto fiscal autonomy; Turkey escalates against PKK/YBŞ in Sinjar; Iran-aligned PMU asserts open control over federal security organs. State coherence degrades to a 2014–2016 baseline absent territorial caliphate dynamics.

Strategic Implications

Assessment (high confidence). Iraq is the central node of hybrid warfare in the eastern Arab world: it integrates state-aligned militia networks, contested sovereignty over force employment, an active residual jihadist insurgency, and a contested energy infrastructure under direct great-power and regional competition. For Iran, Iraq remains the most strategically valuable forward position after the post-2024 contraction of the Axis of Resistance in Syria, Lebanon, and Yemen — making the IRI brigades disproportionately important to Tehran’s regional posture.

Assessment (moderate confidence). The US footprint reduction has not delivered the strategic exit Tehran sought; it has consolidated the relationship into a narrower, more defensible architecture (Erbil + Syria from-Erbil) at the cost of increased KRG exposure. For the United States, the central trade-off through 2026–2027 is whether to accept residual influence loss in exchange for reduced kinetic exposure, or to maintain advisory presence sufficient to backstop counter-IS operations and Kurdish stability.

Assessment (moderate confidence). The Iraqi state’s medium-term coherence depends on three variables that are individually tractable but jointly volatile: government formation durability, PMU command discipline under Iranian strategic guidance, and IS prison-population management. Failure on any single variable is recoverable; failure on two simultaneously approaches Scenario C dynamics.

Gap. Open-source visibility into the internal politics of the Coordination Framework, the post-Soleimani succession dynamics within IRGC-Quds Force Iraq operations, and the precise composition of the 7,000 transferred IS detainees (operational cadre vs. dependants vs. low-tier fighters) is limited. These are the highest-priority collection requirements for any sustained Iraq portfolio.

Intelligence notes

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