For the first time since 2003, Iran has stumbled in Iraq. Prime Minister Nouri al-Maliki's decision to confront Moqtada al-Sadr's Mahdi Army in Basra and Sadr City last month caught Tehran off guard. The Mahdi Army lost more than face: It surrendered large caches of arms, and many of its leaders fled or were killed or captured. Crucially, the militias lost strategic terrain -- Basra and its chokehold on the causeway between Kuwait and Baghdad and Iraq's oil exports; Sadr City and the threat it posed to Baghdad security. Visiting Basra this month, I saw city walls covered with pro-Maliki graffiti. Commerce is returning to the city center. Trouble spots remain in both places, as Tuesday's car bombings show, but the Mahdi Army's unchallenged hold has ended.
Iran wants U.S. forces to leave Iraq and assumes that a friendly Shiite government would then protect Iran's interests. Tehran has looked to Gen. Qasem Soleimani, commander of the Revolutionary Guards' Quds Force, to manage its strategy of supporting Shiite unity and resisting American occupation. But these efforts do not go hand in hand. The first means supporting stability and state-building and working with Iraq's government; the second involves building violent militias that undermine government authority.
It was easy for Tehran to do both when a sectarian war united Shiites against a common Sunni enemy. But sectarian violence has largely ceased, and Sunni insurgents and al-Qaeda are no longer imminent threats. Throughout 2007, militias challenged the government as they terrorized neighborhoods in southern Iraq, disrupting commerce and assassinating clerics as well as government and provincial officials. The situation came to a head in August when Mahdi Army gunmen killed several pilgrims in Karbala. Tehran intervened; Sadr agreed to a truce with government forces and rival Shiite parties and ordered his militia to stand down.
The Quds Force and its backers in Tehran expected the truce to hold, allowing Iran to continue to build militias while also supporting the Baghdad government. Ali Larijani, then head of Iran's Supreme Council for National Security (now the speaker of parliament), and Mohammad Baqer Qalibaf, Tehran's influential mayor, were among those who argued that Iran should stop seeing Iraq through the lens of its conflict with the United States, stop supporting the Mahdi Army and instead throw its weight behind the Baghdad government. But moderate voices were drowned out by the drumbeat of war in Lebanon and growing tensions with America over the nuclear issue.
Maliki's recent push into Basra showed that Iran's policy was untenable. Not only are its two goals at war, but Iran has alienated the Maliki government and mainstream Shiites. One Shiite politician asked me, "How can the government succeed if Iran undermines its effectiveness?" They recognize that Iranian-backed militias were a threat not to Sunnis but Shiites in the government. It was Iranian-made rockets that rained down on the homes of Shiite leaders in the Green Zone. Grand Ayatollah Ali Sistani, who refused to even speak with Iranian President Mahmoud Ahmadinejad during his visit to Iraq, condemned militia violence and said that only government forces should carry guns. Criticism of Iran was rife in conversations I had in Iraq this month, even among those usually protective of Iran's role there.
Iran has also managed to bolster the Iraqi army. The dissolution of Iraq's military after the fall of Saddam Hussein was a strategic victory for Tehran. Yet after all the talk of standing up an army that could confront the Sunni insurgency, it was not by fighting al-Qaeda in Mosul but the Iranian-backed Mahdi Army in Basra that the Iraqi army found its footing.
Iran still has considerable influence in Iraq. It may reconstitute the Mahdi Army and pick up the fight against America, using special groups of the type suspected in the Baghdad car bombing Tuesday. It may also try to use nationalist opposition to the U.S.-Iraq "status of forces" agreement to its advantage. But Tehran will find it difficult to regain lost turf in Baghdad or Basra, or to go back to happily supporting Shiites both at the center and in the militias. It will have to choose whether it is with the state or the sub-state actors.
That debate is unfolding in Tehran. In not-too-subtle criticism of the Quds Force's handling of Iraq, even Tehran's conservative press heaped praise on Maliki during the Basra operations. Some calls for expelling Sadr from Iran even made it into the media.
Washington needs to see this as an opportunity not just for Iraq but for U.S. relations with Iran. The U.S. and Iraqi governments should build on recent gains. Stepped-up action against Mahdi Army cells and disrupting the flow of money and weapons are important, but so is quickly improving the economic lot of the poor of Basra, Sadr City and other Mahdi Army strongholds. In the long run, only good government will change the calculus in Iraq.
It is a frequent refrain in Washington that the United States needs leverage before it can talk to Iran. In Iraq, Washington is getting leverage. America has the advantage while Iran is on its heels. Engaging Iran now could even influence who wins the Iraq debate in Tehran.
Vali Nasr, a professor of international politics at the Fletcher School of Law and Diplomacy and an adjunct senior fellow at the Council on Foreign Relations.