Iraq’s central bank has banned five more local banks from engaging in U.S. dollar transactions, this decision follows meetings with U.S. Treasury officials as part of efforts to stop money laundering, dollar smuggling, and financial violations. According to sources familiar with the matter, this move adds to last year’s ban on eight Iraqi banks from handling U.S. dollars.
U.S. Pressure on Iraq’s Banking System
The ban follows high-level discussions in Dubai between officials from the Central Bank of Iraq and representatives from the U.S. Treasury and Federal Reserve. The United States has been increasing scrutiny of Iraq’s financial sector, which has long been accused of enabling money laundering and sanction evasion.
This latest decision restricts the five banks’ ability to conduct dollar transactions, making it harder for them to operate in global financial markets.
Iraq remains in a delicate position. The country holds over $100 billion in reserves within the U.S. and depends on American goodwill to maintain access to its oil revenues. However, with former U.S. President Donald Trump vowing to revive his “maximum pressure” policy on Iran, Iraq finds itself caught in geopolitical tensions. Iran, which sees Iraq as an economic “lung,” has strong financial, military, and political influence in the country. Iran-backed militias and political parties control key sectors of Iraq’s economy, including its banking system.
Iran’s Influence and U.S. Sanctions
Iran has long relied on Iraq’s financial networks to access hard currency and bypass U.S. sanctions. A Reuters investigation in December exposed a large fuel oil smuggling network generating at least $1 billion annually for Iran and its allies. This illicit trade has expanded under Prime Minister Mohammed Shia al-Sudani’s leadership, complicating Iraq’s relationship with the U.S.
Despite these tensions, the banned banks, Al-Mashreq Al-Arabi Islamic Bank, United Bank for Investment, Al Sanam Islamic Bank, Misk Islamic Bank, and Amin Iraq for Islamic Investment and Finance will still be allowed to operate in other currencies. However, losing access to U.S. dollars is a major blow to their ability to conduct business internationally.
Future of Iraq’s Economy Amid Banking Crackdown
Western officials have praised Prime Minister Sudani for his willingness to implement economic reforms aimed at limiting Iran’s access to U.S. dollars. But with growing U.S. pressure, the situation is expected to intensify. As Iraq attempts to balance its economic ties with both Washington and Tehran, the financial crackdown could reshape its banking landscape.
In addition to the banks, three payment services, Amawl, AL-Saqi Payment, and Aqsa Payment were also affected by the decision. The Central Bank of Iraq and the U.S. Treasury have yet to comment on the latest developments.
