This Commentary first appeared in the American Interest's Middle East Blog on January 13, 2011.

Radical anti-American cleric Moqtada al-Sadr returned to Iraq from three years of exile in Iran last week to a rapturous welcome, riding a wave of popularity and adulation attributable not only to his storied family history and his closeness to the poor urban Shi‘a masses but also to his role as kingmaker in Iraq’s new coalition government. In Najaf, Sadr delivered a speech to an enthusiastic crowd numbering in the hundreds of thousands. While Sadr offered conditional support to the new Iraqi government, he also made it clear that he would continue to resist the U.S. presence, and he issued a not-so-veiled warning of further violence against the American military. “We need resistance men,” he told the crowd. “We need to practice resistance against the occupation in all fields, including those of military and culture. . . . We only target the occupation with all types of resistance.”

Sadr’s return was the flashiest event in Iraqi politics in the first week of the new year, and prompted a great deal of hand-wringing among rival blocs, Iraqi political observers and foreign countries (not least the United States), who speculated on Sadr’s potential impact on Iraq’s fragile political consensus. But it took on even greater significance by coinciding with another important visit to Iraq, this one by Iran’s current Foreign Minister, Ali Akbar Salehi. During a whirlwind of meetings and official statements, Salehi mapped out an ambitious agenda for strengthening relations between the two neighbors, an agenda very much intended to act as a counterweight to the far-reaching strategic partnership the Bush and Obama Administrations have envisioned. Taken together, the two events marked the beginning in earnest of a campaign to supplant the United States in political influence as the final year of America’s troop presence winds down. Whether Iran will succeed is an open question, but the strategy will pose major headaches for both Iraq’s political leaders and the United States.

The friendly face of Iran was on full display during the Salehi visit. The Foreign Minister spoke—in fluent Arabic, as he was born in Iraq’s holy city of Karbala and once lived in Baghdad’s Khadimiyah city—of expanding trade between the two countries, which currently amounts to some $7 billion per year, and of lifting visa requirements to facilitate cross-border tourism. He also alluded to the historical ties between the two countries, noting that Iran and Iraq are each other’s “cultural continuation.”

On the political front, Salehi proposed settling all outstanding disputes between the two countries, including border issues and accounting for POWs still missing from the Iran-Iraq war. Prior to his departure for Iraq, Salehi told Ibrahim Ja’afari, the head of the Shiite bloc in the Council of Representatives, that Iran favors a comprehensive strategic framework for cooperation between the two countries, with an emphasis on economic issues. With regard to security, Salehi told his Iraqi interlocutors—who included Prime Minister Maliki, Foreign Minister Zebari, and President Jalal Talabani—that Iran is ready to take steps to support “sustainable security” in Iraq, perhaps a suggestion that Iran wants to explore prospects for border security and other forms of military cooperation. Salehi and Zebari also discussed ideas for disposing of what Iran sees as the major terrorist threat in Iraq—the members of the Iranian opposition group Mujaheddin e-Khalq, now being held under Iraqi guard at Camp Ashraf north of Baghdad. Zebari said “we are determined to deal with this issue.”

None of this is precisely new. The last six years have seen many efforts by Iran to expand its economic and political influence in Iraq and to settle bilateral problems on terms favorable to Tehran. To a certain extent this has succeeded. By some estimates, trade between Iran and Iraq has expanded by 30 percent every year since the U.S. invasion in 2003. Iraq depends heavily on Iranian exports in certain sectors, mainly construction materials and consumer goods. Iraqi politicians are frequent visitors to Tehran, and relations are at least superficially warm.

What is notable, however, is how limited the results have been. An agreement to construct a pipeline from Basra to Abadan to permit crude exports through Iran has not been implemented; neither has a proposal to build a Basra-Khoramshar rail line. A proposed Iranian loan of $1 billion was never spent; another proposal by Iran to build a major housing project in Basra has likewise gone nowhere. Promises by Iran to build an approximately 500-megawatt generator to provide electricity to Sadr City, a Shiite enclave in Baghdad, have not played out either. Plans to open an Iran-Iraq Chamber of Commerce have not materialized since the proposal was first raised in 2004, although the issue came up again during Salehi’s visit.

Efforts to solve thorny political issues have made little progress, too. For example, Iranian demands to settle the border demarcation along the Shatt al-Arab waterway have gone nowhere in Baghdad. Likewise, the Mujaheddin e-Khalq issue has been hanging fire for years. Even the question of a military-to-military relationship has been raised in the past but seen little progress. In 2005, for example, the two sides approved a military cooperation agreement that included provisions for Iranian training of the Iraqi Security Forces. The pact never came to fruition. By contrast, Tehran was unable to achieve another key goal: that of short-circuiting the 2008 strategic agreements between the United States and Iraq, which spelled out a far-reaching defense relationship between the two countries.

These failures suggest that there are limits to how fast and how far relations between Tehran and Baghdad can go. Resurgent Iraqi nationalism is a key limiting factor; cultural, religious and historic differences with Iran are never far from the surface. Iraqi leaders resent Iran’s efforts to expand its influence while clandestinely training and arming extremist militants who pose a serious security threat to the state. They also resent Iran’s efforts to meddle in Iraq’s politics by bribing Iraqi politicians, funding electoral campaigns and infiltrating various Iraqi government ministries. Iran’s penchant for promising big things and delivering relatively little has dented its stock too. Many Iraqis—even among the majority Shi’a community—want cordial relations with Iran but prefer to keep it at arm’s length.

For now, however, the bilateral relationship appears strong, at least on the diplomatic level. “Iraq-Iran relations have never been this close since Cstesiphon (near today’s Baghdad) was the capital” of the Sassanid Persian empire, as one U.S. government official put it to me. This is perhaps understandable, given Iran’s key role in reuniting the Shi‘a political blocs and then urging Sadr to drop his objections to a second term for Maliki, thus paving the way for the government formation compromise that left Maliki in power. And Iraqis are no doubt hedging their bets with an eye on the calendar, counting down the months until the U.S. withdrawal.

But a larger reason for this may be that Iraqi leaders understand the importance of keeping Tehran relatively happy while they sort out their own internal political difficulties and rebuild the power and authority of the Iraqi state. An important factor here is clearly military: Iraq currently lacks the capacity to pose a credible counterweight to Iran, as it has insufficient artillery, armored assets and air power (for which it now depends upon the United States). America’s ambitious plans to continue arming, training and supplying the Iraqis over the coming years under the authorities of the strategic partnership agreement may change that in time. “When that has been rectified,” another U.S. official told me, “I predict the Iraqis won’t be smiling the false smiles of the weak but the predatory smiles of the hunter.”

In the meantime, Iran will continue to push every advantage it possesses to weaken Iraq’s ties with the United States and expand into the presumed political vacuum left by our military exit. The public face of this effort will comprise political blandishments and extravagant promises of economic cooperation, of the type rolled out during the Salehi visit, as well as cultural and religious appeals. The clandestine aspect of Iran’s strategy will be also be familiar: secret military and financial support for Shi‘a militants run by the Iranian Revolutionary Guards (such as Hizballah of Iraq, a group that announced its existence from Tehran on January 10, pledging to “campaign against the United States and campaign against occupation”). Iran will also rely heavily on arm-twisting and browbeating Iraqi politicians to fall, or stay, in line; payoffs to parties and politicians will be liberally used, as in the past, to purchase Iraqi allies. Finally, Iran will occasionally employ military force to assert its interests, as it has during repeated cross-border shelling of Kurdish militants in the north and the temporary occupation of Iraq’s southern oil wells at Fakka in December 2009.

Which brings us back to the return of Moqtada al-Sadr. On January 1, four days before Sadr’s arrival in Najaf, the Promised Day Brigades claimed credit for a rocket attack on a U.S. military base in Diwaniyah. The Promised Day Brigades are a Sadr-affiliated militant group, trained in Iran, which replaced Sadr’s disbanded Mahdi Army. Sadr’s ties to the group, ostensibly illegal under Iraqi law, and his continued encouragement of “resistance” by the Brigades and others, are worrisome indicators of the ambiguous role he plays in the new Iraqi government; one foot remains in the political process while the other is planted firmly in violent resistance to the government’s legally sanctioned military and political relationship with the United States. Read more important, they are ominous signs of the lengths Iran will go to to leverage Sadr for its own ends, which could lead to significant instability in the future.

None of this is in the interest of the Iraqi government, however friendly it might now appear to be toward Tehran. And it is not in the interest of the United States, which must figure out a way to develop and stabilize its strategic relations with Baghdad. This is likely to prove the most significant challenge for U.S. policy in the coming year.

Assertions and opinions in this Policy Insight are solely those of the above-mentioned author(s) and do not necessarily reflect the views of the Middle East Institute, which expressly does not take positions on Middle East policy.