The United States stops transporting U.S. dollars to Iraq... Strengthening political pressure amid security conflicts

The U.S. government has once again cut off the inflow of U.S. dollar cash into Iraq, and the security conflicts in the Middle East are directly turning into comprehensive pressure on Iraq’s financial flows and on U.S.-Iraq relations.

According to a report by The Wall Street Journal (WSJ) on ( local time ), the U.S. Treasury has recently blocked the planned shipment of $500 million (, or about 7.4 trillion Korean won ), worth of U.S. dollar cash to Iraq by air. The money is the Iraqi Central Bank’s attempt to extract its oil-sale proceeds—stored in an account at the Federal Reserve Bank of New York—into cash form. Although Iraq is an oil-producing country, the share of cash use in its overall economy remains relatively high; therefore, the process of withdrawing dollars accumulated from U.S. accounts into physical currency has long been an important pillar of its financial operations.

This measure goes beyond mere financial management. In practice, it has been interpreted as a political and security pressure tactic. The U.S. believes that since the U.S.-Iraq war began in late February, Iran-aligned armed groups inside Iraq have repeatedly attacked U.S. diplomatic institutions, and the Iraqi government has been unable to curb this or provide an effective response. It is reported that the U.S. has conveyed to the other side that, until the armed groups stop attacking and the Iraqi government takes substantive countermeasures, it will not only suspend the shipment of U.S. dollar cash but also cut off support for the counter-terrorism and military training programs previously provided.

The U.S. has not been using U.S. dollar supply as leverage for the first time. Back in 2015, it also interrupted shipments on the grounds that U.S. dollar cash might flow to the Islamic State (IS) armed forces. Using dollar circulation control in a similar manner as a bargaining chip for pressure shows that the U.S. is combining its influence over Iraq’s financial network with diplomatic and security policies. In particular, since Iraq needs each year to withdraw roughly $13 billion (, or about 19 trillion Korean won ), in oil-sales proceeds from the Federal Reserve Bank of New York in physical currency, if such measures continue over the long term, they could place significant pressure on market liquidity or on cash settlement conventions.

U.S. State Department Chief Deputy Spokesperson Tom P. Poynter told the WSJ that, with some forces linked to the Iraqi government continuing to provide political, financial, and operational support for armed groups, the Iraqi government has been unable to stop attacks against the U.S., which has had a negative impact on relations between the two countries. He then urged the Iraqi government to take all measures immediately to dismantle Iran-linked armed forces within its territory. This trend is very likely to continue in the future, with the U.S. tying financial sanctions to reductions in military cooperation and applying joint pressure on Iraq; at the same time, the spread of security unease within Iraq is also increasing the likelihood of problems involving currency circulation and economic stability.