U.S. freezes dollar shipments to Iraq, pressures Baghdad to curb Iran-backed militias

The Trump administration has halted U.S. dollar shipments to Iraq and frozen some security cooperation programs with the Iraqi military, turning a routine financial channel into leverage over Baghdad’s response to Iran-backed militias.

U.S. Treasury Department officials blocked a delivery of nearly $500 million in U.S. banknotes, money tied to Iraqi oil sales and meant to move out of the Federal Reserve Bank of New York. The move sharpened pressure on an Iraqi government that depends heavily on oil revenue and access to U.S.-linked banking channels, giving Washington a direct financial tool to demand changes in Baghdad’s internal security posture.

The financial squeeze came as the diplomatic fallout widened. On April 9, U.S. Deputy Secretary of State Christopher Landau summoned Iraqi Ambassador Nizar Khirullah after a drone struck a major U.S. diplomatic facility in Baghdad. The U.S. Embassy in Baghdad said Iraqi "terrorist militias" aligned with Iran had carried out multiple drone attacks near the Baghdad Diplomatic Support Center and Baghdad International Airport, escalating concern inside Washington over repeated threats to American personnel and facilities.

Washington also told Baghdad it was suspending funding for some counterterrorism and military training programs until militia attacks stop and Iraqi authorities move to dismantle armed groups. That decision extends the pressure beyond banking and into the military relationship, putting training, intelligence sharing and counterterrorism coordination at risk at a moment when Iraq is still navigating overlapping militia activity, regional conflict and questions over the state’s monopoly on force.

For Baghdad, the cost is not only political. Blocking dollar shipments can unsettle currency management and complicate day-to-day economic planning, especially when Iraq relies on oil receipts passing through U.S. financial channels. For the United States, the strategy offers a way to target Iran-backed militias indirectly, but it also raises the stakes for already fragile ties with the Iraqi government. The message from Washington is clear: access to dollars, security support and military cooperation are no longer separate issues, and Baghdad will be judged on how far it moves against armed groups that threaten American interests in Iraq and across the region.