Iraq Becomes Drone War Battlefield as Iran-Backed Militias Strike Gulf States. Five Hundred drone attacks from Iraqi territory hit Saudi Arabia and beyond, raising fears of a hidden regional war spiraling out of control By Dr. Pshtiwan Faraj, SULAIMANI, Kurdish Policy Analysis , April 21-- Iraqi militia groups close to Iran have fired dozens of drones at Saudi Arabia and the Gulf countries during the war; This has created a “silent” war in the midst of the Great War. According to a report in the Wall Street Journal on Tuesday, April 21, 2026, half of the 1,000 drone strikes against Saudi Arabia were from within Iraqi territory. The report cited a Saudi security assessment that said the attacks targeted sensitive positions, including the Yanbu refinery on the Red Sea and oil fields in eastern Saudi Arabia. The report said the drones hit not only Saudi Arabia, but also Kuwait's only civilian airport. Even after US President Donald Trump announced a ceasefire earlier this...
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The US has stopped shipping dollars to Iraq's central bank until the new government is formed in Baghdad
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The Dollar Freeze: Washington Pushes Iraq’s Economy to the Brink. U.S. halts dollar shipments to Iraq, suspends security ties amid militia threats. With oil exports down 80% and US dollar shipments halted, Baghdad faces a total financial meltdown.
By Dr. Pshtiwan Faraj, Kurdish Policy Analysis, April 20-- Al-Hadah reports that the US has stopped shipping dollars to Iraq's central bank until the new government is formed in Baghdad.
Sources quoted by al-Hadath also reported that the US suspended security coordination meetings until a government is formed and those responsible for the bombing of the US embassy and the logistics support base at Baghdad International are identified.
The United States has significantly intensified financial and security pressure on Iraq as of April 20, 2026, citing government-linked support for militias and a failure to protect diplomatic personnel. This pressure coincides with a major domestic political impasse and a severe economic crisis caused by regional conflict.
U.S. halts dollar shipments to Iraq, suspends security ties amid militia threats
The United States has suspended physical dollar shipments to the Central Bank of Iraq and frozen security coordination with Baghdad, according to reports from Al-Hadath and diplomatic sources, escalating pressure on the Iraqi government to curb the activities of Iran-backed militias.
The reported freeze on liquidity and security cooperation comes as Iraq faces a deepening economic crisis following a massive disruption to crude oil production in the Strait of Hormuz. Baghdad, which relies on oil exports for 90% of its state revenue, now faces a double blow of collapsing exports and restricted access to the U.S. currency required to stabilize its economy.
SECURITY TIES FROZEN Washington has reportedly halted high-level security meetings and frozen funding for Iraqi security institutions. Sources told Al-Hadath that these measures will remain in place until a new government is formed in Baghdad and those responsible for recent attacks on U.S. interests are held accountable.
The U.S. Embassy in Baghdad, the consulate in Erbil, and logistics bases at Baghdad International Airport have been the targets of repeated missile and drone strikes since late February. U.S. officials have grown increasingly frustrated with what they describe as "political and financial cover" provided to these militias by entities within the Iraqi government.
"Iraqi terrorist militias allied with Iran continue to plan additional attacks against American citizens and U.S.-related targets throughout Iraq," the U.S. Embassy said in a statement issued Monday. The embassy further warned of ongoing risks from missiles and drones in Iraqi airspace, even as limited commercial flights resume.
ECONOMIC TURMOIL The financial restrictions hit Iraq at a moment of extreme vulnerability. In March, Iraq saw a significant drop in crude production and export capacity due to regional instability in the Hormuz passage. The loss of oil volume, combined with the U.S. withholding dollar shipments, threatens the government's ability to pay public sector salaries and maintain the value of the Iraqi dinar.
For years, Baghdad has attempted a delicate balancing act between its two primary allies, Washington and Tehran. However, the current deadlock in forming a new government has left a power vacuum that U.S. officials suggest is being exploited by the Popular Mobilization Forces (PMF) and other Iranian-aligned groups.
REGIONAL FALLOUT The Iraqi government has repeatedly called for the country to be spared from being turned into a battlefield for regional and international conflicts. Despite these pleas, the escalation of hostilities between the United States and Israel on one side, and Iran on the other, has increasingly drawn Iraq into the crossfire.
As of Monday, the Iraqi Ministry of Finance had not officially commented on the reported suspension of dollar flows.
Financial Pressure and Dollar Restrictions
Dollar Transaction Bans: The Central Bank of Iraq (CBI) has barred 22 Iraqi banks from U.S. dollar transactions due to compliance failures and suspected links to illicit financial flows to Iran.
Restricted Shipments: Washington has implemented rigorous tracking for physical dollar shipments, forcing the CBI to reduce allotments for local exchange companies by over 50%.
Funding Freezes: The U.S. National Defense Authorization Act (NDAA) for Fiscal Year 2026 includes provisions to freeze half of the funds allocated for the Office of Security Cooperation in Iraq (OSC-I) until Baghdad disarms militias and asserts state authority.
Security Coordination and Diplomatic Warnings
Suspended Meetings: Reports indicate the U.S. has suspended high-level security coordination meetings with Baghdad until a new government is formed and those responsible for attacks on U.S. facilities—including the embassy and
explicitly alleged that "elements associated with the Iraqi government" are providing political, financial, and operational cover for Iran-aligned "terrorist militias".
Travel Alert: The embassy renewed its Level 4 "Do Not Travel" advisory, urging Americans to "leave now" due to the ongoing risk of missiles, drones, and rockets in Iraqi airspace despite a fragile regional ceasefire.
Economic Impact: The Oil Crisis
Iraq’s economy is currently reeling from a historic supply collapse:
Hormuz Closure: A military conflict involving the U.S., Israel, and Iran led to the effective closure of the Strait of Hormuz in March 2026.
Export Collapse: Iraq's oil exports plummeted by 81.3% in March, dropping to just 18.6 million barrels (down from nearly 100 million in February).
Revenue Loss: Monthly oil revenue fell to $1.95 billion, a fraction of the usual $6.8 billion, severely threatening a government that relies on oil for 90% of its income.
Political Impasse
The Coordination Framework is currently deadlocked over selecting a Prime Minister, with intense rivalry between supporters of current PM
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