Iraq Reaches Deal With U.S. to Resume Dollar Shipments After Four-Month Halt, Report Says

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

Details of the Agreement

Under the terms of the new arrangement, shipments of U.S. banknotes to Baghdad, which had been halted since late February, resumed late last month. The agreement reportedly came after the U.S. Treasury Department received assurances from the Iraqi government on tighter financial oversight.

Baghdad has committed to specific measures aimed at curbing illicit dollar flows, including:

• Preventing Iran and its allies from accessing dollars through Iraq's currency-exchange businesses.
• Halting salary payments in U.S. dollars to members of Iran-aligned militias.

Context of the Suspension

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The U.S. Treasury Department ordered the Federal Reserve to stop the cash deliveries as part of a broader strategy to isolate Iran financially and pressure the Iraqi government to reduce its ties with Tehran. The move effectively cut off the government of Prime Minister Ali Al Zaidi from physical access to cash generated by its own oil sales, which are deposited at the Federal Reserve Bank of New York.

During the suspension, the Fed canceled at least two planned cash shipments on Treasury's orders, one of which was valued at approximately $500 million, according to officials cited in the report. The halt in dollar shipments exerted significant pressure on Iraq's economy, which is heavily reliant on cash for government and commercial transactions.

Market Implications

The resumption of dollar flows is a critical development for Iraq's financial stability, providing needed liquidity to its central bank and the wider economy. For investors, the agreement signals a potential de-escalation of financial tensions between Washington and Baghdad, though the long-term success of the deal will depend on the effective implementation and enforcement of the new currency controls. The measures, if successful, would tighten the enforcement of U.S. sanctions against Iran by closing a key channel for accessing hard currency.