In a move that potentially has severe economic and security ramifications for Iraq’s overall stability, the United States has blocked the shipment of dollars to Iraq and frozen funding for Iraqi security programs.
The move followed months of US President Donald Trump warning Baghdad to do more to curtail the powerful Iran-backed militias in the country, whose political factions wield substantial power.
Last week, Washington reportedly halted a shipment of almost $500 million in banknotes from going by plane to Baghdad. Revenue from Iraq’s oil exports is deposited in an account at the US Federal Reserve Bank in New York City.
Baghdad remains overwhelmingly reliant on this to pay its bloated public sector employees and could face a cash crisis if the dollar block is prolonged.
Trump previously warned Iraq in January that he would withdraw Washington’s support if Nouri al-Maliki was nominated as the country’s next prime minister. The US again bombed militia groups operating under the banner of the self-styled Islamic Resistance of Iraq during the recent Iran war .
These groups targeted US interests in Iraq and the Kurdistan Region with hundreds of drone attacks throughout that war. Iraq, meanwhile, still hasn’t chosen its next prime minister, despite the deadline .
Joel Wing, author of the Musings on Iraq blog , warned that this latest American move could prove catastrophic for the Iraqi government, noting that the Iraqi state relies upon oil money to cover more than a whopping 90% of its revenue.
“It is already suffering due to the impact of the Iran war, which has dramatically cut its petroleum exports,” Wing told The New Arab . “If it doesn’t have access to the money, it will not be able to pay its government workers and pensioners and will quickly lead to protests and social unrest.”
Washington has also gone further in its demands, he says. “It wants a government that does not have Iranian influence and for resistance leaders to be arrested for attacks upon Americans during the Iran War.”
The Iraq analyst believes that the move is driven more by “anti-Iranian elements” in the US national security establishment than by Trump, “who doesn’t know anything about foreign policy”.
Mohammed A. Salih, a non-resident senior fellow at the Foreign Policy Research Institute, believes the American move is significant.
First and foremost, he said, it “signals displeasure with the current course and policies” of the Iraqi government and the political elites behind it, whom he notes are predominantly Shia.
“On both Maliki’s premiership and the militias’ rogue and unruly behaviour during the recent war, the US is deeply infuriated with Iraq,” Salih told TNA . Unintended consequences It remains to be seen if the US move will achieve its goal of pressuring Baghdad to crack down on these militias.
There is also a possibility that it could even backfire by hardening the resolve of these armed groups and their powerful political factions to oppose US interests in Iraq. After Trump’s January threat, Maliki notably remained defiant .
Wing argued that the self-styled Resistance factions in Iraq have already emerged as the “clear winners” from the Iran war.
“They attacked Americans, the Kurds, and almost all the neighbouring countries without facing any real consequences,” he said. “The attacks by the US and Israel lacked any kind of purpose or strategy. Baghdad also did little to stop them.”
According to Wing, the threats by the Trump administration could further reinforce militia narratives, which have repeatedly called for the US to leave Iraq.
Salih similarly believes that the latest US move could well push these militias and factions to “harden their positions”.
After all, he noted, they demonstrated throughout the latest war that they do not act with Iraq’s interests at heart. Instead, they “prioritise and implement” Iran’s agenda in Iraq and the broader region.
“However, this is also a moment of reckoning for the Shia political factions outside of the Iran-controlled militias,” he said. “They either confront the militias on their destabilising and destructive policies or will bring themselves and the entire country to pay for the unwise behaviour of the militias.” First real action Wing outlined how the US move isn’t merely symbolic, noting that US policy toward Iraq has often been “haphazard,” with Washington and the US Embassy invariably demanding that Baghdad end Iranian influence and doing little else.
Therefore, the dollar blockage marks the “first real action” taken to compel the Iraqis to do something.
“The most important thing to consider in this turn of events is that the Iraqi government cannot fulfil American demands,” Wing said. “It doesn’t look like Maliki will become premier, but whoever does will have pro-Iran politicians and Resistance members in his coalition. It’s unclear if the US will object to that or only cares about blocking Maliki.”
More generally, Baghdad isn’t in a position to hold these groups accountable even if it sought to do so. Wing noted that they can arrest some low-level members but described such action as mere “theatre” as these individuals are protected by the powerful pro-Iran political wings that are part of the government. Therefore, anyone arrested in Baghdad can count on being released.
“Touching resistance leaders will disrupt the political system because again they hold positions within the ruling coalition and government offices,” Wing said. “Iran is also Iraq's neighbour and therefore has much more power within Iraq than the US does.”
In the meantime, any prolongation or regular recurrence of the US ban on dollar deliveries will no doubt harm the Iraqi economy and finance sector. FPRI’s Salih predicts it would “generate panic” about Iraq’s future and the possibility of more punitive measures down the road by Washington.
“We’ve already seen the dollar's value increase vis-à-vis dinar,” Salih said. “It could have serious repercussions for trade and the general stability of the Iraqi economy and markets, and the population's faith in the political elites and Baghdad government to handle relations with the US in a right or productive way.” Fragile security As mentioned, the US also froze some security funding. For over a decade, the US military in Iraq has helped its Iraqi counterparts and the Kurdish Peshmerga fight the Islamic State (IS) group. IS lost all the Iraqi territory it had conquered in 2014 by the end of 2017, but some militants remain, mostly hiding in rural parts of the country.
The US has also provided intelligence, surveillance, and reconnaissance capabilities to help the Iraqis locate and target remaining militants.
Salih described Iraq’s security as still “quite fragile,” especially given the prevailing regional conditions. “Iraq has particularly come to rely much on the US over the years for countering the IS threat at military and intelligence levels,” he said. “Suspension of security cooperation would certainly be detrimental to Iraq’s security and stability.”
Wing is less concerned about IS remnants exploiting the current tensions between Baghdad and Washington.
“IS is literally dead in Iraq,” he said. “A lot more would have to happen for it to even have a chance of reviving.” Cornered KRG It’s unclear how this whole situation will affect the autonomous Kurdistan Region. The US has close ties with Erbil, although the region remains part of Iraq and will likely feel some impact.
Wing pointed out that the Kurdistan Regional Government remains “economically dependent” upon Baghdad for monthly budget payments.
“If the central government is not getting its revenues, the Kurds won't be getting their money either, so it all trickles down throughout society,” he said.
In the 1990s, when the Iraqi dinar collapsed under the sheer weight of the UN sanctions against Saddam Hussein, the nascent KRG found itself under a double embargo. One by the world because it was part of Iraq, and another by Baghdad that sought to undermine its self-rule. Kurdish leaders were understandably embittered by this farcical position they found themselves in.
“The Americans do not have a policy for the Kurds,” veteran leader Masoud Barzani told journalist Amberin Zaman in 1998. “They have sentenced us to remain the enemies of Iraq and also remain part of Iraq.”
Today, Salih believes that the KRG is “double paying” for Baghdad’s irresponsible behaviour and the militias that are on the central government’s payroll.
“On the one hand, it has been unfairly pressured by Baghdad and the militias for years in both security and economic/financial domains,” he said.
“And now, given the failure of the federal government and ruling Shia elites to establish strong relations with the US and their failure to rein in the militias directed by Tehran, the Kurdistan Region will have to pay for US sanctions or punitive measures against Baghdad, as Kurds are part of Iraq.” Paul Iddon is a freelance journalist based in Erbil, Iraqi Kurdistan, who writes about Middle East affairs. Follow him on Twitter: @pauliddon Edited by Charlie Hoyle