The United States has taken targeted financial and security steps to increase pressure on Baghdad to address the presence and activities of Iran-aligned militias inside Iraq, according to officials briefed on the matter.
U.S. Treasury officials recently intervened to block the movement of nearly $500 million in U.S. dollar banknotes - funds described as proceeds from Iraqi oil sales - that were held in accounts at the Federal Reserve Bank of New York. At the same time, Washington has informed Iraqi authorities it is suspending funding for certain counter-terrorism and military training programs until militia attacks stop and steps are taken to dismantle armed groups operating in the country.
Officials say the suspension of security cooperation programs is conditional - linked directly to the cessation of attacks attributed to Iran-aligned militias and to demonstrable Iraqi action against those groups. The pause affects some but not necessarily all U.S. assistance tied to training and counter-terrorism collaboration.
The decisions follow a string of recent incidents, including a drone strike that hit a major U.S. diplomatic facility in Baghdad. U.S. officials have pointed to a series of drone attacks in the capital and have blamed Iran-aligned "terrorist militias" for those strikes. In response to the escalation earlier this month, Washington summoned Iraq's ambassador.
There has been no immediate independent verification of the blocked banknote delivery, and both the U.S. Treasury Department and the Federal Reserve did not immediately provide comment when asked. Officials involved in the discussions have described the measures as leverage aimed at pushing Baghdad to take concrete steps against armed groups that threaten U.S. personnel and interests in Iraq.
The combination of financial restrictions and suspension of some security funding represents a calibrated application of U.S. leverage - tying economic and military cooperation to specific actions by Iraqi authorities. How Baghdad responds, and whether the measures prompt the intended dismantling of militia infrastructure, remains an open question for both sides.
Summary
The U.S. has blocked a delivery of nearly $500 million in U.S. banknotes linked to Iraqi oil revenues and suspended funding for certain counter-terrorism and military training programs in Iraq to pressure Baghdad to dismantle Iran-backed militias responsible for recent drone attacks, including one that struck a U.S. diplomatic facility in Baghdad.
- Key points:
- Washington blocked nearly $500 million in U.S. dollar banknotes held at the Federal Reserve Bank of New York - funds described as proceeds from Iraqi oil sales.
- The United States has suspended funding for some counter-terrorism and military training programs until militia attacks cease and Iraqi authorities act to dismantle armed groups.
- These actions follow a drone strike on a major U.S. diplomatic facility in Baghdad and a series of drone attacks that U.S. officials attribute to Iran-aligned militias.
- Sectors potentially affected:
- Banking and finance - due to the intervention involving Fed-held accounts and large cash deliveries.
- Defense and security - through suspension of military training and counter-terrorism cooperation.
- Energy - because the blocked funds are described as proceeds from Iraqi oil sales.
- Risks and uncertainties:
- Diplomatic and security escalation - continued militia attacks could prompt further suspensions of cooperation, affecting defense partnerships and the security environment.
- Operational gaps in Iraqi counter-terrorism capacity - suspension of training and assistance could weaken capabilities in the short term if pauses are prolonged.
- Economic and liquidity strain - blocking the transfer of sizable oil-revenue funds may create cash-flow pressures for Iraqi institutions tied to those proceeds.