Iraq Agrees to New Dollar Controls to Resume U.S. Cash Shipments, Report Says

Iraq and the U.S. have reportedly reached an agreement to resume physical shipments of U.S. dollars to Baghdad after a four-month halt. The deal is conditioned on Iraq implementing new controls to prevent currency from being illicitly transferred to Iran and its allied militias, according to a report from The Wall Street Journal citing U.S. and Iraqi officials.

Details of the Accord

Under the terms of the agreement, the Iraqi government has committed to tightening its financial oversight. The measures are specifically designed to stop U.S. dollars from being funneled to Iran through two primary channels:

• Iraq's network of currency-exchange businesses.
• Salary payments to members of Iran-aligned militias.

Following these commitments, U.S. dollar deliveries, which are transported via cargo aircraft, reportedly resumed in late June, according to Iraqi officials cited in the report. The cash originates from Iraq's oil sales revenue, which is held at the Federal Reserve Bank of New York.

Background on the Suspension

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The U.S. Treasury Department ordered the suspension of banknote deliveries in late February. The move was part of a broader U.S. strategy to pressure Baghdad to curtail its economic and political ties with Tehran, which uses Iraq to access dollars in violation of American sanctions.

During the suspension, the Federal Reserve canceled at least two planned cash shipments on the Treasury's orders. One of these canceled shipments was valued at approximately $500 million. The halt effectively cut off the Iraqi government from a critical source of physical currency needed for state operations and to stabilize its local economy.

Geopolitical Significance

The agreement underscores the significant financial leverage the U.S. holds over Iraq's economy. For investors and regional observers, the resumption of cash flows may signal a temporary stabilization in Iraq's liquidity. However, the situation also highlights the persistent geopolitical risks in the region and Washington's willingness to use access to the U.S. dollar as a tool to enforce its foreign policy objectives.