US halts security ties, dollar flows to Iraq in pressure over militias

BAGHDAD/WASHINGTON – The United States has escalated pressure on Iraq by suspending key elements of security co-operation and halting shipments of US dollars tied to the country’s oil revenues, in a move that underscores Washington’s growing impatience with Baghdad’s political paralysis and the influence of Iran-backed militias.

According to Iraqi officials, the decision links the resumption of financial flows and intelligence co-operation to two conditions: the formation of a new government free from militia influence and the arrest of individuals accused of attacking US diplomatic and military targets.

The move strikes at the heart of Iraq’s economic system. Since the 2003 invasion, Iraq’s oil revenues, which account for roughly 95 per cent of the federal budget, have been channelled through the Federal Reserve Bank of New York, giving Washington significant leverage over the country’s access to hard currency.

By restricting dollar shipments, the US is effectively tightening control over liquidity in an import-dependent economy that relies heavily on foreign currency to pay for food, energy and essential goods. While transactions for imports continue, the halt in hard cash flow risks amplifying financial strain and public discontent.

The suspension of participation in joint security meetings further compounds the pressure. Intelligence sharing and military co-ordination have been central to Iraq’s efforts to contain threats from both extremist groups and militia activity. Their disruption could weaken Baghdad’s already fragile security architecture.

The move comes against the backdrop of escalating attacks by pro-Iran militias, which have expanded their operations beyond Iraq to target US assets in the region. These developments have reinforced the determination of Donald Trump to curb Tehran’s influence, using both economic and security tools.

Politically, the timing is critical. Iraq remains without a new government more than five months after elections, as Shiite factions remain divided over the choice of prime minister. The continued impasse has created an opening for external actors to exert influence, with Washington now leveraging financial pressure to shape the outcome.

Yet the strategy carries risks. Iraq’s economy is highly vulnerable, and any sustained disruption to dollar flows could trigger wider instability, including currency volatility and rising prices. At the same time, overt US pressure may harden positions among Iran-aligned factions, complicating efforts to reach a political compromise.

For Iraq, the crisis highlights a structural dilemma: its economy remains deeply intertwined with US financial systems, while its domestic policy is heavily influenced by actors aligned with Iran. Navigating this tension has long defined Baghdad’s foreign policy, but the latest measures suggest that the room for manoeuvre is narrowing.

As negotiations continue, the suspension of dollar flows and security co-operation serves as a stark reminder that Iraq’s political future is increasingly being shaped not only in Baghdad, but also in Washington.