Iraq and U.S. officials have reached terms that will allow the resumption of American banknote shipments to Baghdad after a suspension that lasted about four months. Under the agreement, Iraq pledged to implement safeguards intended to prevent U.S. dollars from reaching Iran and militias aligned with Tehran.
Treasury Department orders halted banknote deliveries in late February at the outset of the Iran war. That interruption severed Prime Minister Ali Al Zaidi's government from physical cash proceeds of its oil sales, funds that had been deposited at the Federal Reserve Bank of New York.
The suspension occurred as Iraq's oil exports largely stopped because of the Iran war. The stoppage in cash shipments increased pressure on Baghdad to distance itself from Tehran, which U.S. officials say had been using Iraq as a conduit to obtain dollars in breach of U.S. sanctions. U.S. authorities framed the action as part of a broader effort to draw Iraq closer to Washington following the conflict.
Officials said the Federal Reserve canceled at least two planned cash deliveries at the direction of the Treasury Department, including one shipment with a value of approximately $500 million. Those deliveries, moved on cargo aircraft chartered by the Iraqi government, were reported to have resumed late last month, according to Iraqi officials.
As part of the deal reached between Baghdad and U.S. authorities, Iraqi officials committed to steps designed to stop Iran and its militia allies from obtaining dollars through Iraq’s currency-exchange businesses and through salary payments to militia members aligned with Iran.
The agreement represents a diplomatic and operational adjustment aimed at restoring Baghdad’s access to U.S. banknotes while addressing Washington’s concerns about the diversion of dollars to sanctioned actors. Details on the operational mechanisms of the controls and how they will be enforced were not specified in the available account.
Context and implications
The resumption of physical dollar deliveries restores a channel for Iraq to receive cash proceeds from its oil sales that had been blocked when exports and deliveries were disrupted. The commitment by Baghdad to new controls is tied directly to U.S. objectives of preventing sanctioned parties from receiving dollar funding through Iraqi financial channels.