--- title: "Washington Restores the Dollar Flow to Iraq After a Months-Long Squeeze" description: "The United States has resumed shipments of dollar cash to Iraq after a suspension of roughly four months that strained the Iraqi dinar and rattled Baghdad — a financial lever Washington pulled to press Iraq's government to rein in Iran-aligned militias, and has now eased, with conditions." category: "World" category_url: https://herald.la/category/world author: "Simone Bishop" published: 2026-07-02T04:07:00.000Z updated: 2026-07-02T04:07:00.000Z canonical: https://herald.la/article/washington-restores-the-dollar-flow-to-iraq-after-a-months-long-squeeze tags: ["Iraq", "United States", "dollar", "Federal Reserve", "Iran", "militias", "world"] --- # Washington Restores the Dollar Flow to Iraq After a Months-Long Squeeze The United States has resumed shipments of dollar cash to Iraq after a suspension of roughly four months that strained the Iraqi dinar and rattled Baghdad — a financial lever Washington pulled to press Iraq's government to rein in Iran-aligned militias, and has now eased, with conditions. Iraq's economy runs on dollars that pass through New York — a fact that has quietly given Washington one of its strongest levers over Baghdad, and one it has just released. ## A lever pulled, then eased Under an arrangement dating to the aftermath of the 2003 invasion, Iraq's oil revenues are deposited into an account at the Federal Reserve Bank of New York, and the U.S. Treasury periodically converts a portion into physical banknotes flown to Baghdad to feed Iraq's heavily cash-based economy. Beginning in April 2026, the Trump administration blocked those shipments — halting a cargo flight carrying nearly $500 million, [Al Jazeera reported](https://www.aljazeera.com/news/2026/4/22/us-halts-iraq-dollar-shipments-in-pressure-campaign-over-iran-linked-groups) — as Iran-aligned militias escalated attacks on U.S. forces in the region. After about four months, the flow resumed: two dollar shipments reached Baghdad in mid-June during a visit by Tom Barrack, President Trump's envoy for Iraq and Syria, an adviser to Prime Minister Ali Falih al-Zaidi told [Kurdistan 24](https://www.kurdistan24.net/en/story/911475/us-dollar-shipments-to-iraq-resume-after-temporary-halt-advisor-says). ## Why it was cut Washington's longstanding concern is that dollars reaching Iraq leak to sanctioned Iran-linked networks; the Treasury had already barred roughly half of Iraq's licensed banks from dollar transactions over such transfers. The suspension widened that pressure to the whole economy, and, according to reporting, was tied explicitly to demands that Baghdad form a government able to disarm militias and hold accountable those behind attacks on U.S. personnel. ## The conditions attached The resumption came with strings. A joint U.S.-Iraqi statement in June called for the "complete disarmament" of armed groups operating outside state control, and Washington pressed for the suspension of several Iraqi banks accused of moving dollars to Iran and for openings to U.S. business. Some factions moved to comply — the cleric Muqtada al-Sadr said he was dissolving his militia, and others began transferring heavy weapons to the state — though the powerful Kataib Hezbollah said it would not disarm. Analysts urged caution: the Foundation for Defense of Democracies argued that voluntary disarmament "sounds too good to be true," [noting](https://www.fdd.org/analysis/2026/06/03/voluntary-militia-disarmament-in-iraq-sounds-too-good-to-be-true-and-it-likely-is/) that the state-funded Popular Mobilization Forces remains largely intact. ## The toll of the freeze The squeeze exposed how dependent Iraq is on the pipeline. Oil sales fund the overwhelming majority of the federal budget, and during the freeze the dinar weakened sharply on the parallel market and the central bank's cash reserves fell steeply, according to Kurdistan 24 and Rudaw. Iraq's monthly oil revenue also dropped as regional hostilities disrupted its Basra exports. ## A balancing act For al-Zaidi, one of Iraq's youngest-ever prime ministers, the restored dollars are both a lifeline and a leash: they aid a government that has staked its credibility on curbing armed factions, a goal aligned with Washington but politically fraught given the weight of Iran-affiliated movements in parliament. The Herald could not independently confirm every detail of the arrangement, including which banks Washington named or whether a fuller, formal restoration of all transfers followed the cash shipments; those points were reported variously and remain to be confirmed. What is clear is the lesson the episode underscored — that Iraq cannot easily step away from the New York Fed, and that its oil money can become a pressure point whenever Washington's calculus shifts. ## Sources - [US halts shipment of Iraq's oil dollars to curb Iran-linked groups](https://www.aljazeera.com/news/2026/4/22/us-halts-iraq-dollar-shipments-in-pressure-campaign-over-iran-linked-groups) - [US dollar shipments to Iraq resume after temporary halt, adviser says](https://www.kurdistan24.net/en/story/911475/us-dollar-shipments-to-iraq-resume-after-temporary-halt-advisor-says) - [Voluntary militia disarmament in Iraq sounds too good to be true](https://www.fdd.org/analysis/2026/06/03/voluntary-militia-disarmament-in-iraq-sounds-too-good-to-be-true-and-it-likely-is/)