Jump a hundred years forwards to a hypothetical future where the USA is fragmenting, Iowa becomes a country, IA and IW are already assigned to some other countries that have sprung up, and ISO is somehow still relevant. When Iowa says “we want IO”, what do you say? “Sorry, we used that code a hundred years ago for a tiny island in the middle of nowhere, how do you feel about YA, it sounds a little like Iowa, right?”
(Admittedly if the USA fragmented, each state into a country, you’d have far worse problems than Iowa. Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana… eight Ms, and already M_ is down to only three available, MB, MI and MJ. M is a popular letter to start names with.)
There are already a few country codes assigned where I can’t see where the second letter came from, e.g. AW, AX, BJ, BQ, CW, GW, SX, PW. A definite habit of giving a W or X if they can’t come up with anything better.
A few country codes have already been reassigned once (having formerly been either assigned or reserved indefinitely, then deleted): AI, BQ, GE, LT, ME, RU, SK.