US Resumes Dollar Shipments to Iraq, Demands Cuts to Iranian Influence

The Trump administration has resumed sending US dollar cash shipments to Iraq after a four-month suspension that began with the outbreak of war between the US and Iran. The halt, initiated in late February, cut off a critical source of cash for Baghdad, which depends heavily on dollar liquidity supplied from the Federal Reserve Bank of New York. This move was part of a broader US effort to curb Iranian influence in Iraq by restricting access to American funds for Iran-backed militias operating in the country.

According to reports from the Wall Street Journal, the US Treasury Department conditioned the resumption of dollar shipments on Iraq implementing measures to prevent Iran and its allied militias from obtaining dollars through currency exchange businesses and militia payrolls. The Federal Reserve had canceled at least two shipments, including one worth approximately $500 million, before resuming transfers at the end of June. An Iraqi government spokesperson confirmed the renewal of funds but declined to specify the exact steps taken.

Iraq’s economy remains heavily reliant on cash dollars, despite efforts to reduce dollar dependency in recent years. Since the 2003 US invasion, Iraq’s oil revenues have been deposited in the New York Fed, which annually sends billions in cash to support Iraq’s local economy. The US Treasury has also sanctioned over a dozen Iraqi banks suspected of facilitating dollar transactions for militias, including illicit transfers and credit card fraud schemes benefiting Iran.

Despite Baghdad’s moves to limit Tehran’s financial reach, Iran continues to assert its influence in Iraq. Recent events, such as the funeral of Iran’s Supreme Leader Ali Khamenei, saw prominent Iranian figures including Quds Force commander Esmail Qaani visiting Iraq and meeting with leaders of pro-Iranian militias like Abu Ala al-Walaei of the extremist Sayyid al-Shuhada militia. These visits underscore Tehran’s ongoing involvement in Iraqi security and political affairs.

The US strategy aims to leverage Iraq’s financial dependence to pressure Baghdad into distancing itself from Iran, but the complex realities on the ground suggest that Tehran’s influence remains resilient.