Baghdad (IraqiNews.com) — The United States has restarted supplies of U.S. dollar banknotes to Iraq after Baghdad agreed to take further steps to stop American cash from reaching Iran and Iran-backed armed organizations, The Wall Street Journal reported, citing Iraqi and United States officials.
The outbreak of the Iran war in late February froze shipments of physical dollars from Iraq’s oil revenues held at the Federal Reserve Bank of New York, enforced by the U.S. Treasury Department, and shipments were suspended for some four months, putting pressure on Baghdad’s cash-based economy.
Under the deal, Iraq promised to tighten its financial system, including stricter regulation of currency exchange firms and efforts to prevent U.S. cash from reaching Iran or Iran-backed militias via salaries and other financial channels.
Iraq agreed to put in place extra protections to prevent armed organizations from abusing its banking system, a U.S. Treasury official told the newspaper, and shipments resumed. Iraqi authorities said dollar payments had resumed but did not disclose the new terms publicly.
During the delay, the Treasury Department canceled at least two cash shipments, including one for around $500 million, before delivery resumed late last month, The Wall Street Journal said.
The deal comes as Prime Minister Ali Falih Al-Zaidi aims to boost economic ties with Washington while pushing domestic banking reforms.
Al-Zaidi is set to go to the United States later this month to have meetings with President Donald Trump, the newspaper added.
The report also mentioned that the Trump administration has pushed Baghdad to limit the role of Iran-backed militias, including steps to tighten monitoring of cash flows and increase official control over armed organizations.
Analysts told The Wall Street Journal that there are big political obstacles to enacting such regulations, given the entrenched role of militia groups in Iraq’s political and security scene.
Since 2003, Iraq has depended on supplies of U.S. dollar banknotes since most of its economy is still cash-based.
Access to actual dollars is a key source of liquidity for Iraq’s banking sector since oil profits are kept at the Federal Reserve Bank of New York before being released to Iraq.
The new deal is part of a wider push by Washington to tighten financial controls in Iraq while reducing the ability to evade sanctions and move dollars illegally across borders, as Baghdad grapples with balancing its strong economic links with the United States and neighboring Iran.