Iraq’s Shia militias have long served as Iran’s most powerful projection of force outside its own borders, receiving billions in funding and sophisticated weaponry to maintain Tehran’s grip on Iraqi politics and threaten American interests across the Middle East. That relationship is now under severe strain. The February 28, 2026 joint U.S.-Israeli airstrikes that killed Supreme Leader Ayatollah Ali Khamenei have thrown Iran’s entire proxy network into crisis mode, triggering an unprecedented wave of retaliatory attacks by Iraqi militias against U.S. forces — with six American service members killed and 18 wounded in the days that followed.
The Popular Mobilization Forces, a sprawling network of approximately 238,000 fighters spread across 67 primarily Shia armed factions, sit at the center of this escalating conflict. These groups draw roughly $3.5 billion annually from Iraq’s own federal budget while simultaneously taking orders from Tehran. Now, with Iran scrambling to install Mojtaba Khamenei as successor to his father and Washington threatening Iraq with sanctions over militia influence in government, both the Iranian regime and its Iraqi proxies face an existential reckoning. This article examines how the funding pipeline works, what the current military escalation looks like on the ground, and what it means for Iraq, the United States, and the broader region.
Table of Contents
- How Do Iraq’s Shia Militias Receive Funding and Weapons From Iran?
- What Happened When the U.S. and Israel Struck Iran on February 28?
- Who Is Mojtaba Khamenei and What Does His Rise Mean for the Militias?
- What Are Washington’s Options for Pressuring Iraq on Militia Influence?
- How Iran’s Financial Extraction Weakens Iraq From Within
- The Expanding Militia Network — From Iraq to Yemen
- What Comes Next for Iraq, Iran, and the United States
- Conclusion
- Frequently Asked Questions
How Do Iraq’s Shia Militias Receive Funding and Weapons From Iran?
The financial architecture connecting Iran to Iraq’s Shia militias is remarkably brazen. The Popular Mobilization Forces are a formal line item in Iraq’s national budget, receiving an estimated $3.5 to $3.6 billion annually from Iraqi taxpayers. Though technically part of the Iraqi Armed Forces, PMF leaders operate with near-total independence and maintain loyalty not to Baghdad but to Iran’s supreme leader. This arrangement means that Iraqi government funds flow directly to groups whose command structure answers to a foreign power — a dynamic that the Foundation for Defense of Democracies and other analysts have flagged as one of the most corrosive features of post-2003 Iraqi governance. Beyond the official budget allocation, conservative estimates from the Jewish Center for Financial Affairs put Iran’s total financial extraction from Iraq at $8 to $12 billion annually.
This staggering figure includes oil smuggling operations, the capture of PMF budget funds, payments to “ghost soldiers” who exist only on payroll sheets, and deep institutional corruption woven into Iraqi ministries and state-owned enterprises. To put that in perspective, Iraq’s entire federal budget hovers around $150 billion — meaning Iran may be siphoning off roughly 5 to 8 percent of Iraq’s national wealth each year through various channels. The weapons pipeline operates through similarly entrenched networks. The Muhandis General Company, named after the late PMF deputy commander Abu Mahdi al-Muhandis, plays a central role in smuggling Iranian arms to militia groups inside Iraq. Key recipients include some of the most dangerous U.S.-designated terrorist organizations in the region: Kata’ib hezbollah, Asa’ib Ahl al-Haq, Kata’ib Sayyid al-Shuhada, and Harakat Hezbollah al-Nujaba. These groups receive everything from Iranian-designed drones and ballistic missiles to advanced explosive devices — capabilities that have been turned directly against American forces in recent weeks.
What Happened When the U.S. and Israel Struck Iran on February 28?
The joint U.S.-Israeli airstrikes on February 28, 2026, fundamentally altered the strategic landscape of the Middle East in a single day. The operation killed Ayatollah Ali Khamenei, Iran’s supreme leader since 1989, along with other senior officials. The strike decapitated the leadership structure that had spent decades building and coordinating the network of proxy forces stretching from Lebanon to Yemen to Iraq. Within hours, the so-called Islamic Resistance in Iraq — an umbrella label used by Iranian-backed militias — began launching retaliatory strikes against American positions across the country. The scale and tempo of these attacks have been staggering. On February 28 alone, the Islamic Resistance in Iraq claimed 16 separate operations against U.S. targets. By March 1, the number jumped to 21 operations involving dozens of drones aimed at American bases. March 2 saw 28 operations using a combination of missiles and drones. On March 4, militia groups claimed 27 attacks on what they called “enemy bases” in less than 24 hours.
And on March 8, another 24 drone and missile strikes hit U.S. installations in a single day. Saraya Awliya al-Dam, a lesser-known faction, specifically claimed drone attacks on U.S. troops at Erbil International Airport on March 1 and at Camp Victoria near Baghdad International Airport on March 2. However, if anyone expected these retaliatory strikes to go unanswered, they miscalculated badly. U.S. and Israeli forces struck back on March 1 and 2, targeting PMF bases and facilities belonging to Kata’ib Hezbollah, Kata’ib Sayyid al-Shuhada, and Asa’ib Ahl al-Haq. The U.S. Embassy in Iraq issued a security alert warning that “Iran-aligned terrorist militias continue to pose a significant threat to public safety.” Six U.S. service members have been killed and 18 wounded since the start of major combat operations, according to U.S. Central Command — numbers that could climb rapidly if the current pace of militia attacks continues.
Who Is Mojtaba Khamenei and What Does His Rise Mean for the Militias?
On March 8, 2026, just eight days after his father’s assassination, Mojtaba Khamenei was elected as Iran’s new supreme leader. The Islamic Revolutionary Guard Corps and Iran’s top remaining leadership publicly pledged allegiance to him, signaling an attempt at rapid institutional continuity. But a pledge of allegiance on Iranian state television is one thing; maintaining operational control over a sprawling network of foreign proxy forces is something else entirely. The transition creates real vulnerabilities for Iran’s militia system.
Khamenei the elder had spent 36 years cultivating personal relationships with militia commanders, IRGC officers, and political operatives across the region. Those relationships were built on trust, patronage, and a shared ideological project stretching back to the 1979 revolution. Mojtaba, by contrast, is largely untested on the international stage. As Al Jazeera reported, the killing left Iran’s “axis” in disarray — and the question of whether proxy commanders in Iraq, Lebanon, and Yemen will maintain the same level of discipline and coordination under new leadership remains genuinely open. The Iraqi militias appear to be compensating for this uncertainty with sheer volume of attacks, potentially trying to demonstrate their continued relevance and commitment to the resistance project regardless of who sits in Tehran.
What Are Washington’s Options for Pressuring Iraq on Militia Influence?
The United States is pursuing a dual-track approach: military strikes against militia targets and diplomatic pressure on Baghdad to marginalize Iranian-backed groups in Iraqi governance. Washington has explicitly threatened Iraq with sanctions if members of Iran-backed militias hold senior roles in the incoming Iraqi government. An Iraqi government adviser confirmed to Alhurra that Baghdad is “dealing seriously with U.S. demands” to exclude Iran-aligned militias from the next government — a significant acknowledgment given that militia-linked political blocs hold substantial seats in Iraq’s parliament. The tradeoff for Washington is uncomfortable. On one hand, sanctioning Iraq risks destabilizing a government that the United States spent two decades and trillions of dollars trying to build. Iraq’s economy is heavily dependent on oil revenues that flow through U.S.-dollar-denominated channels, meaning American financial leverage is enormous.
On the other hand, failing to act leaves in place a system where Iraqi taxpayer money funds groups that are actively killing American soldiers. The PMF’s $3.5 billion annual budget allocation makes this particularly galling — it is difficult to justify continued economic support for a government that officially funds organizations designated as terrorist groups by the U.S. Treasury Department. For Iraq’s own political leadership, the calculation is equally grim. Cutting off the militias risks internal conflict with heavily armed groups that have repeatedly demonstrated willingness to use force against Iraqi institutions. But failing to rein them in risks the kind of American sanctions that could cripple Iraq’s already fragile economy. There is no clean exit from this dilemma, and Iraq’s political class knows it.
How Iran’s Financial Extraction Weakens Iraq From Within
The $8 to $12 billion that Iran extracts annually from Iraq is not merely a foreign policy problem — it is an economic catastrophe for ordinary Iraqis. That money represents schools not built, hospitals not staffed, and infrastructure left to crumble in a country where roughly a quarter of the population lives below the poverty line. The “ghost soldier” phenomenon is particularly corrosive: thousands of militia fighters exist only on government payrolls, collecting salaries that are funneled back to Iranian-controlled entities while contributing nothing to Iraq’s security or public services. The oil smuggling component deserves special attention. Iran has long used Iraqi territory and Iraqi oil infrastructure to circumvent international sanctions, blending Iraqi crude with Iranian supplies and moving product through networks that are difficult for international monitors to track. This smuggling operation not only steals revenue from the Iraqi state but also undermines the international sanctions regime designed to constrain Iranian behavior. It is worth noting, however, that cracking down on these networks is extraordinarily difficult in practice.
The smuggling routes are deeply embedded in local economies, and the communities along these corridors often depend on the illicit trade for their livelihoods. Any serious enforcement effort would need to offer economic alternatives, not just military or police action. The broader warning here is that Iran’s financial grip on Iraq creates a vicious cycle. The more money Tehran extracts, the weaker Iraqi institutions become. The weaker those institutions are, the more space militias have to operate. And the more powerful the militias grow, the more money they can funnel to Iran. Breaking this cycle requires structural reforms to Iraqi budgeting, banking, and oil revenue management that no Iraqi government has yet shown the political will to implement.
The Expanding Militia Network — From Iraq to Yemen
Iraqi militias are not operating in isolation. Reports indicate that Iran-backed groups in Iraq are collaborating with Yemen’s Houthis to develop weapons and expand capabilities, extending Iran’s proxy network across a wider geographic arc. This collaboration means that drone and missile technology tested in one theater can be adapted and deployed in another — a kind of open-source weapons development program coordinated under Tehran’s umbrella. Kata’ib Hezbollah has been explicit about its long-term ambitions.
The group’s leadership has publicly stated its intent to “drag the U.S. into a long war of attrition… in which we leave no American presence in the region generally, especially in Iraq.” That is not the language of a group seeking a negotiated settlement. It reflects a strategic commitment to prolonged conflict — one that draws directly on the Iranian model of asymmetric warfare perfected over four decades.
What Comes Next for Iraq, Iran, and the United States
The coming weeks and months will test whether Mojtaba Khamenei can consolidate control over Iran’s proxy network or whether the system begins to fragment under pressure. The pace of militia attacks on U.S. forces in Iraq shows no signs of slowing, and the American military response has thus far targeted infrastructure and bases without decisively degrading militia capabilities. If the cycle of strikes and counter-strikes continues, Iraq risks becoming the primary battlefield in a wider U.S.-Iran conflict — a scenario that would be catastrophic for Iraqi civilians and destabilizing for the entire region.
The diplomatic track may ultimately matter more than the military one. If Washington follows through on sanctions threats and Baghdad genuinely moves to sideline militia-linked politicians from government, it could mark a turning point in Iraq’s post-2003 trajectory. But that outcome requires sustained American diplomatic engagement, not just periodic threats, and it requires Iraqi leaders willing to risk confrontation with groups that have guns, money, and Iranian backing. History suggests skepticism is warranted, but the killing of Khamenei has created a window of uncertainty that did not exist before — and windows like that do not stay open long.
Conclusion
Iraq’s Shia militias have operated for years as Iran’s most effective tool for projecting power, funded by billions from Iraq’s own budget and armed through Iranian smuggling networks. The February 28, 2026 assassination of Ayatollah Khamenei has thrown this entire system into crisis, triggering massive militia retaliation against U.S. forces while simultaneously creating questions about the long-term viability of Iran’s proxy model under new and untested leadership. Six American service members are dead, dozens of militia attacks continue daily, and Iraq is caught between Washington’s sanctions threats and Tehran’s demands for loyalty.
The core challenge has not changed: Iraq cannot function as a sovereign state while a parallel military force funded by its own budget takes orders from a foreign capital. What has changed is the intensity of the pressure on all sides. The United States, Iran under Mojtaba Khamenei, and Iraq’s political establishment all face decisions in the coming weeks that will shape the region for years. Whether this moment produces meaningful reform or simply another cycle of violence depends on choices that have not yet been made — and on whether any of the parties involved are willing to accept the costs of a different path.
Frequently Asked Questions
What are the Popular Mobilization Forces (PMF)?
The PMF is a coalition of approximately 238,000 fighters organized into roughly 67 armed factions, most of them Shia and Iranian-backed. Though formally incorporated into the Iraqi Armed Forces, many PMF groups operate independently and maintain loyalty to Iran’s supreme leader rather than to Baghdad.
How much money does Iraq give to the PMF each year?
The PMF receives an estimated $3.5 to $3.6 billion annually as a formal line item in Iraq’s federal budget. Beyond this direct allocation, Iran extracts an estimated $8 to $12 billion from Iraq each year through oil smuggling, ghost soldiers, budget capture, and institutional corruption.
How many U.S. service members have been killed in the recent fighting?
As of early March 2026, U.S. Central Command has reported six service members killed and 18 wounded since the start of major combat operations following the joint U.S.-Israeli strikes on Iran on February 28, 2026.
Who replaced Ayatollah Khamenei as Iran’s supreme leader?
Mojtaba Khamenei, son of the slain supreme leader, was elected as Iran’s new supreme leader on March 8, 2026. The IRGC and senior Iranian leaders pledged allegiance to him, though questions remain about his ability to maintain his father’s control over Iran’s proxy network.
Which Iraqi militia groups are designated as terrorist organizations by the United States?
Key U.S.-designated terrorist organizations among Iraq’s Iran-backed militias include Kata’ib Hezbollah, Asa’ib Ahl al-Haq, Kata’ib Sayyid al-Shuhada, and Harakat Hezbollah al-Nujaba.
What sanctions has the U.S. threatened against Iraq?
Washington has warned Iraq that it could face sanctions if members of Iran-backed militias hold senior positions in the incoming Iraqi government. An Iraqi government adviser has confirmed that Baghdad is taking these demands seriously.