Abstarct: Despite the extensive economic potential and the strategic position of the two countries, the development of bilateral trade between the Islamic Republic of Iran and the Republic of Iraq faces numerous legal, economic, institutional, and political challenges. The present study aimed to identify, explain, and prioritize the legal and economic challenges affecting the development of bilateral trade between Iran and Iraq and to propose appropriate strategies for improving these trade relations. In terms of purpose, this study is applied research, and in terms of methodology, it adopts an exploratory sequential mixed-methods design. In the qualitative phase, data were collected through semi-structured interviews with experts and analyzed using thematic analysis. baxsed on the findings of this phase, a researcher-developed questionnaire consisting of 42 items across seven principal constructs was designed. In the quantitative phase, the questionnaire was administered to 400 economic actors, managers, and experts involved in Iran–Iraq trade, and the collected data were analyzed using SPSS software. The qualitative findings revealed that the challenges affecting the development of bilateral trade could be classified into seven dimensions: legal challenges, economic challenges, institutional and governance challenges, geopolitical and political challenges, regional competition and Iran’s position, adaptation strategies of economic actors, and trade development strategies. The quantitative findings confirmed the satisfactory reliability of the research instrument and indicated that the data were not normally distributed. The results of the one-sample Wilcoxon signed-rank test demonstrated that legal challenges, economic challenges, institutional and governance challenges, adaptation strategies of economic actors, and trade development strategies were evaluated by the respondents as being significantly above the average level. Furthermore, the Friedman test showed that economic challenges ranked as the highest priority, followed respectively by trade development strategies, legal challenges, institutional and governance challenges, adaptation strategies of economic actors, geopolitical and political challenges, and regional competition and Iran’s position. The findings indicate that the sustainable development of Iran–Iraq bilateral trade requires simultaneous reforms of the legal frxamework, improvement of economic infrastructure, strengthening of institutional coordination, stabilization of trade regulations, and expansion of cooperation between the public and private sectors in both countries. The implementation of these measures can facilitate higher trade volumes, reduce existing barriers, and enhance Iran’s competitive position in the Iraqi market.