US halts shipment of Iraq’s oil dollars in bid to curb Iran-linked groups

The United States has halted shipments of US dollars to Iraq and paused some security cooperation programmes 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.

The report said a recent cargo plane shipment carrying nearly $500m in US banknotes was blocked by the US Department of the Treasury. The money came from Iraqi oil revenues held in accounts at the Federal Reserve Bank of New York.

The suspended transfer was 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 move closer to the US and loosen longstanding ties with Iran during the nearly eight-week war.

It follows attacks claimed by Iran-aligned groups inside Iraq, targeting US military facilities and neighbouring countries in what they described as support for Tehran.

The US has also carried out air attacks against armed factions in Iraq aligned with Iran, including groups linked to the Popular Mobilisation Forces (PMF) – an umbrella body of factions formally incorporated into Iraq’s state security apparatus.

In a statement on Tuesday, Iraq’s central bank did not refer directly to the halted deliveries, but said it had sufficient US currency reserves.

Iraq war legacy

Following the 2003 US-led invasion of Iraq, Washington took control over the management of Iraq’s oil revenues by placing tens of billions of dollars in proceeds at the Federal Reserve Bank of New York.

Although the arrangement was presented as a way to stabilise Iraq’s economy, critics said it gave the US enormous leverage over a country it had just occupied, allowing Washington to influence Iraq’s financial system and access to its own oil wealth.

Large shipments of cash were then sent back to Baghdad each year to keep the economy functioning, reinforcing Iraq’s dependence on US-controlled financial channels.

US officials told The Wall Street Journal the suspension of shipments was temporary, but did not specify what steps Iraq would need to 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 the Iran-backed armed groups in Iraq.