Iraq Agrees to Halt Dollar Flows to Iranian Militias for Resumed US Currency Shipments

Iraq has conceded to stringent U.S. demands to sever the flow of American dollars to Iran-backed militias, unlocking the resumption of vital currency shipments to Baghdad.

The agreement ends a four-month blockade imposed by the Trump administration on Iraqi oil revenues held at the Federal Reserve Bank of New York.

Financial Leverage

Washington halted the banknote deliveries in late February, coinciding with the outbreak of the Iran war.

The suspension stranded crucial cash reserves belonging to the government of Prime Minister Ali Al Zaidi.

The freeze capitalized on a standstill in Iraqi oil exports driven by the regional conflict.

By throttling access to U.S. currency, the administration increased pressure on Baghdad to sever financial conduits Tehran uses to evade American sanctions.

Treasury officials directed the Federal Reserve to cancel at least two scheduled shipments. One of these halted deliveries contained roughly $500 million in physical currency.

Baghdad Concessions

Flights carrying the banknotes, chartered by the Iraqi government, finally resumed late last month.

The resumption was contingent upon Baghdad implementing rigorous safeguards against militia financing.

Iraqi authorities have explicitly pledged to block Iran and aligned armed factions from extracting dollars via domestic currency-exchange networks, according to The Wall Street Journal.

Furthermore, the government committed to halting official salary distributions to members of Iran-aligned militias.

While a spokesperson for Zaidi confirmed the reinstatement of financial transfers, Iraqi officials declined to detail the specific restrictive measures imposed on the currency.

Political Maneuvering

The financial ultimatum is a central component of a broader U.S. strategy, forcing Baghdad to align more closely with Washington.

Zaidi, a political novice who assumed office in May following parliamentary approval, is scheduled to meet President Donald Trump in Washington this month.

The prime minister secured his position with Trump's endorsement, alongside public backing from Iranian officials.

This dual support emerged despite Zaidi owning a bank previously sanctioned by the U.S. Treasury over alleged ties to a militia leader.

Washington conditioned its political support on Zaidi excluding militia factions from the government and curtailing Iranian influence.

Consequently, Zaidi has issued directives requiring militias to disarm and submit to state authority.

Embedded Militias

Implementing these American mandates presents severe political hazards for the newly minted prime minister.

Previous administrations have consistently failed to sideline the militias, which maintain entrenched parliamentary support and deep economic networks.

Originally mobilized following the U.S. invasion more than two decades ago, these predominantly Shia units received extensive Iranian armament.

Many were formally integrated into the Iraqi state payroll following their campaign against Islamic State insurgents in 2014.

Significant overlap currently exists between state-sanctioned units and rogue factions designated by Washington as terrorist organizations.

Analysts indicate that militia commanders routinely siphon off salaries by registering nonexistent ghost soldiers.

Currency Operations

During recent hostilities, these armed factions subjected US diplomatic and military installations in Iraq to weeks of sustained attacks.

The groups also launched drones and rockets at American allies in the Persian Gulf, prompting retaliatory U.S. airstrikes.

The Trump administration's financial strategy aims to dismantle the economic machinery supporting these operations.

Iraq's cash-dependent economy requires approximately $13 billion annually in physical dollar shipments from the Federal Reserve to function.

These bulk deliveries are necessitated by a lack of private Iraqi financial institutions holding international ties.

Over the past two years, the Treasury has blacklisted more than two dozen Iraqi banks for executing fraudulent wire transfers designed to siphon federal dollars.

Militias have also exploited electronic payment systems, smuggling pre-loaded credit cards to neighboring countries like the United Arab Emirates.

The funds are withdrawn as dollars, repatriated to Iraq, and traded for dinars in a lucrative arbitrage scheme that systematically benefits Tehran.