US Threatens to Squeeze Iraq’s Oil Dollars Over Iran‑Backed Factions

The United States has warned senior Iraqi politicians that Washington could impose sweeping sanctions, including curbs on vital oil poor revenues held at the Federal Reserve Bank of New York, if Iran‑aligned armed groups are brought into Iraq’s next governing coalition, multiple Iraqi and Western sources say.

U.S. officials delivered the message repeatedly over the past two months through Joshua Harris, the U.S. chargé d’affaires in Baghdad, in talks with Iraqi leaders and influential Shi’ite figures.

 

The threat marks the most forceful move yet in Trump’s campaign to limit Iran’s influence in Iraq, a country that has long tried to balance ties with both Washington and Tehran.

 

Iraq keeps most of its oil export earnings in a sovereign account at the New York Fed, effectively giving Washington leverage over a revenue stream that underpins salaries, subsidies and state operations.

 

Successive U.S. administrations have already sanctioned more than a dozen Iraqi banks to choke off dollar flows suspected of helping Iran evade sanctions, but they have not previously threatened to restrict the core oil‑revenue channel itself.

 

Reactions and Stakes

Iraqi officials describe the possibility of curbing dollar transfers from the Fed as a “nuclear option” that could trigger sharp currency pressure and deepen economic instability.

 

A U.S. State Department spokesperson said Washington supports Iraqi sovereignty and insists there is “no role” for Iran‑backed militias that pursue malign interests and fuel regional terrorism.​

 

The warning comes as Trump intensifies pressure on Tehran, having ordered strikes on Iran’s nuclear program in June and threatened further military action amid ongoing unrest in the Islamic Republic.