US halts Iraq's oil dollar shipments to curb Iran influence

The United States has halted shipments of US dollars to Iraq and paused some security cooperation programs with the Iraqi military, increasing pressure on Baghdad to curb powerful Iran-aligned groups, according to Iraqi and US officials cited by The Wall Street Journal. A recent cargo plane carrying nearly $500 million in US banknotes was blocked by the US Department of the Treasury. The funds originated from Iraqi oil revenues held in accounts at the Federal Reserve Bank of New York.

This suspension marks the second scheduled dollar shipment to Iraq’s central bank delayed by Washington since the US-Israel war on Iran began in late February. The move comes as Washington pushes Baghdad to strengthen ties with the US and reduce longstanding connections with Iran during the nearly eight-week conflict. This follows attacks claimed by Iran-aligned groups inside Iraq, which targeted US military facilities and neighboring countries in support of Tehran. The US has also conducted airstrikes against armed factions in Iraq aligned with Iran, including groups linked to the Popular Mobilisation Forces (PMF).

In a statement on Tuesday, Iraq’s central bank did not directly address the halted deliveries but asserted it had sufficient US currency reserves. Following the 2003 US-led invasion of Iraq, Washington gained control over the management of Iraq’s oil revenues, placing billions of dollars at the Federal Reserve Bank of New York. While this arrangement was framed as a stabilizing measure, it has allowed the US to exert significant influence over Iraq’s financial system and access to its oil wealth.

US officials indicated that the suspension of shipments is temporary, though they did not specify what actions Iraq must take for deliveries to resume. Prime Minister Mohammed Shia al-Sudani, in office since 2022, has sought US support for a second term while also avoiding confrontation with Iran-backed armed groups in Iraq.