When Iraq agreed in 2021 to supply Lebanon with heavy fuel oil to ease its electricity crisis, the deal was presented as a gesture of solidarity. However, it was really about shared vulnerabilities. The arrangement highlighted a recurring pattern in Iraq and Lebanon—in the energy, financial, and religious domains—in which cooperation mirrored the features of each country’s mode of governance: informality, personalization, and opacity. And this took place in a relationship of interdependence, where two fragile states reinforced each other’s dysfunctions.
The fuel-for-services deal committed Baghdad to supplying Lebanon with roughly 1 million tons of heavy fuel oil annually, in return for medical and other “in-kind” services. Because Lebanon’s power plants cannot process Iraqi heavy fuel, however, the oil was swapped through obscure intermediaries for lighter, usable fuel, a process later described as “broker-driven and politically mediated.” If one includes a six-month extension in March 2025, the agreement left Lebanon owing Iraq nearly $2 billion, of which only about $118 million has been repaid. The arrangement sustained both governments, absent any oversight. For Lebanon, it offered electricity without reform of the energy sector; for Iraq, it created a new patronage channel for politically-connected brokers.
A similar logic also extended to the financial sector. Before Lebanon’s banking collapse in 2019, Iraqi politicians, businessmen, and state agencies were estimated to have deposited up to $18 billion in Lebanese banks. These deposits, drawn to Lebanon’s easy dollar liquidity, with the banking system offering rare access to hard currency in a cash-starved region, functioned as an offshore extension of Iraq’s political economy. When Lebanon’s financial order imploded, much of the money was frozen or lost, exposing how the Iraqi and Lebanese financial systems had become intertwined through elite capital flows. Lebanese banks depended on politically sourced Iraqi deposits to maintain the illusion of stability, while Iraqi elites used Beirut’s banking secrecy and weak supervision to shelter wealth from scrutiny.
This interdependence rests on a common political architecture. Lebanon’s confessional system and Iraq’s post-2003 muhasasa formula both distribute power according to sectarian quotas, ensuring that a consensus among the countries’ elites replaces accountability. Additionally, in both countries militias have been absorbed into political life—Hezbollah in Lebanon and the Popular Mobilization Forces in Iraq—blurring the boundary between state and armed factions. Such systems manage crises, but do not engage in reform, rewarding compromise over competence. Because both Iraq and Lebanon function through patronage networks rather than institutional hierarchies, their cooperation follows a similar pattern of elite-to-elite exchanges that sustain a status quo.
The same dynamics visible in the energy and financial fields—personalized authority, opaque exchanges, and reliance on elite networks—also extend into the religious sphere. Behind the political facade lies a dense social and religious infrastructure linking Najaf and Beirut. The intellectual traffic between Iraq and Lebanon predates modern statehood and continues to shape contemporary Shiite politics. Prominent Lebanese clerics such as Mohammed Mahdi Shamseddine, Mohammed Hussein Fadlallah, Abbas al-Musawi, and Mohammed Yazbek studied in Najaf before returning home to build religious and political institutions.
Fadlallah’s trajectory is illustrative. Having studied in Najaf for over 20 years, he maintained ties with Iraqi seminaries before becoming one of Lebanon’s foremost clerics. Fadlallah’s generation anchored Lebanese Shiism within Iraq’s religious orbit, while later clerics turned toward Iran’s Qom. Shamseddine, a Najaf-educated scholar who later led Lebanon’s Supreme Islamic Shiite Council, embodied the circulation of authority between the Lebanese and Iraqi arenas.
Family lineages reinforce these clerical ties. The Sadr family, which originated in Lebanon’s Jabal Amel, and which later played a central role in Iraq’s Shiite religious leadership, exemplifies how bloodlines translate into transnational political capital. Sadrist influence—from Musa al-Sadr in Lebanon to Mohammed Baqir al-Sadr and Muqtada al-Sadr in Iraq—forms a bridge between two fragmented polities. The Sadrs’ clerical authority provides moral cover for political actors navigating crisis by granting them communal legitimacy allowing them to evade reform.
Religious and family solidarity networks have become the social scaffolding of fragility: they substitute for institutional ties, sustaining trust and influence that allow elites to preserve their authority even amid collapse. Across energy and finance too, the pattern repeats itself. The oil deal operates through brokers rather than ministries; the banking relationship privileged private access, elite connections, and informal networks over transparent public policy, embedding clientelism into cross-border financial transactions.
This transnational web of interdependence amounts to a political economy of fragility. Each state’s weaknesses have become a resource for the other, as elites rely on them to preserve capital and avoid accountability, reinforcing mutual vulnerabilities.
But Lebanon’s and Iraq’s relationship also captures a wider regional paradox, in which solidarity among precarious states often reproduces their shortcomings instead of helping to overcome them. These states’ cooperation, while genuine, operates through elite bargains that bypass the institutions meant to deliver reform. This represents a compact between systems of survival, one in which dysfunction travels more easily than competent authority. Ultimately, a mode of governance is in place in the Middle East through which weak states mirror each other’s decline.
