Iraq Agrees to Stricter Dollar Controls to Resume US Cash Shipments, WSJ Reports

Iraq has reportedly reached an agreement with the U.S. to resume physical shipments of American dollars after a four-month halt, committing to new controls aimed at preventing the cash from being funneled to Iran and its allied militias. The deal, reported by The Wall Street Journal citing U.S. and Iraqi officials, allows Baghdad to once again access the hard currency generated from its oil sales.

Details of the Agreement

Under the terms of the reported agreement, the Iraqi government has committed to implementing stricter financial controls. These measures are designed to stop the flow of U.S. dollars to Iran, which is under heavy American sanctions.

Key commitments from Baghdad include:

• Preventing Iran and its allies from obtaining dollars through Iraq's network of currency-exchange businesses.
• Halting the use of U.S. currency for salary payments to members of Iran-aligned militias.

Iraqi officials stated that the cash deliveries, which are transported via chartered cargo aircraft, resumed late last month, according to the report.

Background on the Suspension

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The U.S. Treasury Department ordered a stop to the banknote deliveries in late February amid a conflict with Iran. This action cut off the Iraqi government from physical access to its oil revenues, which are held at the Federal Reserve Bank of New York. The halt was part of a broader U.S. strategy to pressure Baghdad to reduce its financial ties with Tehran.

During the four-month suspension, the Federal Reserve canceled at least two scheduled cash shipments on the Treasury's orders. One of the canceled shipments was valued at approximately $500 million, officials told the Journal.

Market Implications

The resumption of dollar shipments is critical for Iraq's economic stability. Access to physical dollars is essential for maintaining liquidity in the Iraqi financial system and supporting the value of its local currency. The halt in shipments had put significant pressure on the nation's economy, which is heavily dependent on dollar-denominated oil exports.

For investors and regional observers, this development signals a significant step in U.S. sanctions enforcement against Iran. By securing Iraq's cooperation, Washington aims to close a key channel that Tehran has allegedly used to procure hard currency, potentially impacting Iran's ability to fund its regional activities.