US pledges to 'starve' Iraq of oil revenue if pro-Iran parties join new government

Trump is turning up the pressure on Iraq in his campaign to destabilize Iran

23.01.2026

Nes Desk

Source:https://thecradle.co/articles/us-pledges-to-starve-iraq-of-oil-revenue-if-pro-iran-parties-join-new-government

Washington has threatened to block Iraq's access to its own oil revenue held in the Federal Reserve Bank of New York if representatives of Shia armed parties enjoying support from Iran are included in the next government, Reuters reported on 23 January.

"The US warning was delivered repeatedly over the past two months by the US Charges d'Affaires in Baghdad, Joshua Harris, in conversations with Iraqi officials and influential Shi'ite leaders," Reuters reported, citing three Iraqi officials and one source familiar with the matter.

The threat is part of US President Donald Trump's effort to weaken Iran through a "maximum pressure" campaign of economic sanctions, including on the Islamic Republic's oil exports.

Trump also bombed Iran's nuclear sites as part of Israel's unprovoked 12-day war on Iran in June.

Because of US sanctions, few countries can trade with Iran, increasing its reliance on Iraqi markets for exports and on Baghdad's banking system as a monetary outlet to the rest of the world.

As punishment, the US government has restricted the flow of dollars to Iraqi banks on several occasions in recent years, raising the price of imports for Iraqi consumers and making it difficult for Iraq to pay for desperately needed natural gas imports from Iran.

However, this is the first time the US has threatened to cut off the flow of dollars from the New York Federal Reserve to the Central Bank of Iraq.

Officials in Washington can threaten Baghdad in this way because the country was forced to place all revenues from oil sales into an account at the New York Fed following the US military's invasion of the country in 2003.

This gives Washington strong leverage against Baghdad, as oil revenue accounts for 90 percent of the Iraqi government's budget.

While occupying Iraq for decades and controlling its oil revenues, Washington accuses Iran of infringing on Iraq's sovereignty.

"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," a US State Department spokesperson told Reuters.

Some Shia political parties, including several that make up the Coordination Framework (CF), are linked to the Popular Mobilization Units (PMU), anti-terror militias formed in 2014 with Iranian support to fight ISIS and later incorporated into the Iraqi armed forces.

Iraq held parliamentary elections in November and is still in the process of forming the next government.

Prime Minister Muhammad Shia al-Sudani, who enjoyed good relations with both Washington and Tehran, has decided not to contend for another term as premier.

The decision has cleared the way for Nouri al-Maliki, of the State of Law Coalition and the Dawa Party, to potentially return to power.

Maliki, who enjoys support from the PMU-linked parties, served as prime minister between 2006 and 2014, including when ISIS invaded western Iraq and conquered large swathes of the country.

Trump threatened a new bombing campaign against Iran following several weeks of violent riots and attacks on security forces organized and incited by Israeli intelligence.

Trump allegedly called off the bombing after Israeli Prime Minister Benjamin Netanyahu warned him that Tel Aviv's air defenses were not prepared for a new confrontation with Iran.

During the war in June, Iran retaliated against Israel by launching barrages of ballistic missiles and drones, which did severe damage to Israeli military sites, including in Tel Aviv.