By Dr. Pshtiwan Faraj, Kurdish Policy Analysis, April 20-- Conflicting reports over currency flows highlight Washington’s leverage as sanctions on Iran-linked militias intensify pressure on Baghdad
The Central Bank of Iraq on Monday denied reports that the United States had halted shipments of physical U.S. dollars to Baghdad, pushing back against claims of a financial freeze circulating in regional media.
The denial followed a report by Al-Hadath, which said Washington had suspended currency transfers and security coordination after a series of escalatory diplomatic moves by the United States Department of State.
The central bank said dollar flows from the Federal Reserve Bank of New York remain uninterrupted and that transfer mechanisms continue to operate under international standards.
The conflicting signals come amid high-stakes political negotiations in Baghdad, where factions are attempting to form a new government.
Even without confirmation, reports of a potential “dollar crunch” have already unsettled Iraqi markets, underlining the country’s dependence on U.S.-controlled financial channels.
The tension follows recent U.S. sanctions on senior figures from Iran-aligned groups, including Kata’ib Hizballah, Asa’ib Ahl al-Haqq, and Harakat al-Nujaba.
Officials from the State Department said the targeted individuals exploit Iraqi resources to fund militant activities and called on Baghdad to dismantle such networks.
According to reporting by Financial Times, U.S. officials have warned Iraqi leaders that including militia-linked figures in government positions is incompatible with continued bilateral cooperation.
The dispute centers on the Coordination Framework, the dominant bloc currently leading government formation efforts, which includes factions with ties to Tehran.
Iraq’s financial system remains structurally tied to the United States. Oil revenues are held at the New York Fed, and the U.S. Treasury oversees the flow of dollar liquidity into Iraq. These funds underpin the central bank’s daily currency auctions, which stabilize the Iraqi dinar and support imports of essential goods.
Any disruption to this system could trigger sharp depreciation and inflation. A temporary halt in 2015, driven by concerns over funds reaching ISIS and sanctioned entities, led to immediate market instability.
Beyond finance, security tensions are also escalating. The U.S. Embassy in Baghdad reiterated a “Do Not Travel” advisory, warning that Iran-aligned militias continue to plan attacks against U.S. targets, including in the Kurdistan Region.
The embassy also cautioned that Iraqi airspace, though reopened, remains vulnerable to drones and missile threats.
The overlapping financial and security pressures highlight Washington’s strategy of leveraging economic tools to influence Iraq’s internal political arrangements—particularly the role of paramilitary groups within the state.
For Iraqi leaders, the challenge is acute: maintain access to dollar flows while managing a political coalition that includes the very factions Washington is seeking to sideline.
As of Monday, the Iraqi dinar showed signs of volatility, reflecting public concern over the mixed signals.
For now, the Central Bank insists that dollar shipments continue. But the episode underscores a broader reality: in Iraq, control over cash flow remains one of the most powerful instruments of geopolitical influence.
#Iraq #US #Economy #Sanctions #Geopolitics #CentralBank #Militias #MiddleEast
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