US signals possible oil revenue sanctions to curb Iran’s influence in Iraq

Washington has warned senior Iraqi politicians that it is prepared to impose sanctions on the Iraqi state — including measures that could affect Iraq’s vital oil revenue, which is routed through the Federal Reserve Bank of New York — if Iran-backed armed groups are included in the country’s next government, according to four sources cited by foreign media.

The warning represents the clearest indication so far of US President Donald Trump’s efforts to curb the influence of Iran-linked groups in Iraq, a country that has long sought to balance its relationships with its two key partners, Washington and Tehran.

According to three Iraqi officials and one source familiar with the matter, the message was conveyed repeatedly over the past two months by the US Chargé d’Affaires in Baghdad, Joshua Harris.

The warnings were delivered in discussions with Iraqi officials and influential Shi’ite political figures, including, via intermediaries, some leaders of Iran-linked armed groups. All the sources spoke to journalists on condition of anonymity due to the sensitivity of the private talks. Harris and the US embassy did not respond to requests for comment.

Since taking office a year ago, Trump has taken steps aimed at weakening Iran’s government, including by targeting its influence in neighbouring Iraq. US and Iraqi officials have said that Tehran views Iraq as crucial to sustaining its economy under international sanctions and has long used Baghdad’s banking system to bypass those restrictions. In response, successive US administrations have sought to restrict the flow of US dollars, imposing sanctions on more than a dozen Iraqi banks in recent years. However, Washington has never previously moved to cut the transfer of dollars from the Federal Reserve Bank of New York to the Central Bank of Iraq.

A spokesperson for the US State Department said: “The United States supports Iraqi sovereignty, and the sovereignty of every country in the region. That leaves absolutely no role for Iran-backed militias that pursue malign interests, cause sectarian division, and spread terrorism across the region.” 

Trump, who ordered strikes on Iran’s nuclear program in June, also warned last week that the United States could intervene militarily in Iran again during ongoing protests in the country.