The US Treasury Department has suspended the delivery of US dollars to Iraq until the country's authorities take action to eliminate pro-Iranian armed groups,
The Wall Street Journal reported, citing US Treasury Department officials.
Since the 2003 military campaign, Iraq has been forced to store dollar revenues from oil sales at the Federal Reserve Bank of New York. The Federal Reserve sends billions of dollars in cash to Baghdad annually to support the country's largely cash-based economy.
According to WSJ sources, the US Treasury Department has blocked the delivery of nearly $500 million in banknotes by cargo plane due to US concerns about the activities of Iraqi militias acting on Iran's behalf. The April shipment was not delivered, and the status of the May shipment is unclear, Reuters reports, citing a Central Bank of Iraq official. The official said the country had not received any official notification of the suspension.
Cash is primarily used to meet retail demand for foreign currency, which Iraqis need for travel, medical treatment, and study abroad. Non-cash dollar payments for trade transactions are being processed without changes, an economic adviser to Iraqi Prime Minister Mohammed al-Sudani told the agency.
Cash for the "Axis of Resistance"
Shiite militia groups in Iraq began to form as a result of the political chaos that followed Operation Iraqi Freedom, waged by the United States and its allies in 2003. Shiite militias in Iraq are part of Iran's "Axis of Resistance"—Tehran's network of proxy groups in the Middle East. According to the Wall Street Journal, over the past few weeks, Shiite militias have carried out attacks on American targets in Iraq and neighboring countries in a show of support for Tehran in its war with the United States.
According to the publication, militants are exploiting Iraq's access to US dollars to their advantage. In 2023-2024, the US Treasury Department accused more than two dozen Iraqi banks, many of which were closely linked to pro-Iranian groups, of stealing dollars from Iraqi accounts at the Federal Reserve System using fraudulent bank transfers.
The Wall Street Journal, citing a statement from the Treasury Department, claims that these groups were later involved in receiving large quantities of MasterCard and Visa cards loaded with funds in Iraq. The cards were transported to the UAE and other Middle Eastern countries, where they were used to withdraw cash dollars. The money was then returned to Iraq and exchanged for Iraqi dinars. In this way, the groups profited from currency arbitrage.
In 2015, the US briefly halted cash dollar deliveries due to concerns that they were being diverted to Islamic State* militants; since 2003, Washington has also repeatedly threatened to suspend banknote deliveries. US officials told the Wall Street Journal that the suspension of dollar shipments to Iraq is temporary, but did not specify what specific steps Baghdad must take to combat pro-Iranian groups to resume deliveries.
The Central Bank of Iraq stated that it is not experiencing a shortage of US currency, without mentioning the suspension. The regulator added that it has fully satisfied the demand of the country's commercial banks for dollars.