US halts $500m oil revenue shipment to Iraq amid militia tensions
The second such interruption since the escalation of the US-Israeli war against Iran risks destabilising the Iraqi economy and delaying civil servant salaries until a new administration is formed.
The Trump administration has blocked a cargo plane delivery of nearly $500 million in US banknotes destined for Iraq, marking the second suspension of such shipments since the start of the US-Israeli war against Iran in late February. This decision comes as Washington seeks to pressure Baghdad into dismantling powerful Iranian-backed armed groups following a series of attacks on US facilities in Iraq and neighbouring countries.
While the Federal Reserve Bank of New York continues to hold Iraq's oil revenues, the interruption of these cash flows poses a significant risk to the Iraqi economy. The suspension threatens to delay critical salary payments for civil servants and could destabilise the state until a new government is formed and militia members responsible for recent attacks are arrested.
An Iraqi official confirmed to The National that dollar shipments have ceased, citing the requirement to form a new government and arrest militia members as the condition for resuming the hard currency. Concurrently, Washington has suspended participation in security meetings with Iraq, including essential intelligence sharing, further straining the bilateral relationship during a period of intense regional volatility.
The Central Bank of Iraq stated on Tuesday that it was not currently lacking US dollars, noting that it had fulfilled requests for pilgrims, travellers, and foreign transfers. However, this assertion contradicts the suspension reports, creating uncertainty as the country relies heavily on these funds to operate its cash-based economy and pay its six million civil servants.
Since the fall of Saddam Hussein in 2003, Iraq's oil revenues have been held at the Federal Reserve Bank of New York to shield them from creditors who hold judgments against the country. Historically, the US has shipped up to $13 billion annually in cash to Iraq to fund state operations, a mechanism previously suspended in 2015 amid fears the funds were reaching Islamic State militants.
The current suspension targets groups such as the Badr Brigade, Asaib Ahl al-Haq, and Kataib Hezbollah, which wield significant influence in Iraq's financial sectors and government. Former Prime Minister Nouri al-Maliki, an Iran-aligned figure, remains a key candidate in the current power vacuum, with President Trump previously warning that US assistance would be cut off if Maliki returned to power.
Analysts describe Iraq's political system as an American-Iranian co-management system that has struggled to maintain balance as regional war escalates. The moment this co-management breaks down, the stability of the entire country is at risk, leaving Baghdad trapped between Washington's demands and Tehran's influence.
