The United States has halted a significant cash shipment to Iraq, estimated between $450 million and $500 million, and suspended parts of its security cooperation with Baghdad. This measure is intended to pressure the Iraqi government to rein in Iran-backed militias that are reportedly attacking U.S. interests and allies in the region. The cash, periodically flown into Baghdad, is primarily used to meet retail foreign exchange demand for travel, medical treatment, and overseas study, while electronic dollar transfers for imports remain unaffected. This move follows repeated drone and rocket attacks by Iran-aligned groups in Iraq on U.S. facilities and neighboring states.
The U.S. Treasury Department and the Federal Reserve have not officially responded, but Iraqi sources indicate diplomatic warnings were issued. Washington reportedly conveyed that it would not support any Iraqi government failing to curb these militias, with a foreign ministry source stating this was a "clear message." Despite this, an Iraqi central bank official noted no formal notice of a halt to deliveries, adding that a shipment expected in April did not arrive and the status of a May shipment is unclear.
In addition to the cash halt, Washington has also put military and security cooperation with Iraq on hold, which includes intelligence sharing and routine joint military meetings. This suspension impacts Iraq, a key U.S. ally in the fight against Islamic State. The attacks referenced by Washington include strikes on the U.S. embassy in Baghdad, the U.S. consulate in Iraqi Kurdistan, and rocket/drone attacks against Saudi Arabia, the UAE, Bahrain, Kuwait, Jordan, and Syria. Saudi Arabia, the UAE, and Kuwait have also formally protested to Iraq over these militia attacks originating from Iraqi territory.
Every dollar from Iraq's oil revenues is routed through the Federal Reserve Bank of New York to the Central Bank of Iraq under a system established after the 2003 U.S.-led invasion. Baghdad relies on this system for government salaries, imports, and foreign exchange. The latest actions are seen as a continuation of efforts to curb Iran-linked groups' influence in Iraq, a country navigating between its two closest allies, Washington and Tehran.
