The Trump administration has intensified pressure on Baghdad by withholding critical financial support, including a $500 million shipment of U.S. cash intended for Iraq’s central bank, as Washington demands action against Iranian-backed militias operating in the country.
Treasury Department officials halted the transfer due to concerns that the funds might be used by militia groups active in Iraq. This marks the second such delay since U.S.-Iran hostilities began in late February.
The move comes as Washington also reportedly suspends military training and counterterrorism funding until Iraqi authorities halt attacks on U.S. interests and dismantle Iran-aligned factions. State Department spokesperson Tommy Pigott emphasized that “the Iraqi government’s failure to prevent these attacks while some elements associated with the Iraqi government continue to actively provide political, financial and operational cover for the militias adversely impacts the U.S.-Iraq relationship.” He stated that the United States “will not tolerate attacks on U.S. interests” and expects Baghdad to take immediate steps to dismantle Iran-backed militia groups.
Iraq’s central bank has downplayed the situation, claiming it had “fulfilled all requests from banks and exchange companies for U.S. dollars,” without referencing the suspended cash deliveries.
For years, Iraq’s reliance on physical U.S. currency has given Washington significant leverage over Baghdad’s economy. Since 2003, Iraqi oil revenues have been held in New York, with billions later transferred to Baghdad to sustain its cash-driven financial system. The U.S. temporarily halted similar transfers in 2015 after fears the money was flowing to Islamic State militants.
Officials confirmed that while the latest freeze is not permanent, specific conditions for reinstating it remain unclear.
