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How oil-rich Iraq ran out of dollars?

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Three years ago, Iraq was on the brink of expelling US troops, but now, Prime Minister al-Sudani asserts that his nation needs US and NATO forces. Although he gives ISIS as the reason, the dollar crisis in the country seems to be a more plausible explanation. The political actors backing al-Sudani blame the United States for the crisis but having to handle this crisis shortly, al-Sudani sees the exit in reconciliation with Washington.

The political turmoil in Iraq after the elections in October 2021 resulted in al-Sudani taking the seat of Prime Minister as a candidate of the so-called Iran-backed Shiite alliance in October 2022. in his first US interview since taking office, al-Sudani said, “we need the foreign forces to eliminate ISIS.” “Iraq would like similar relations with Washington to what Saudi Arabia and other Persian Gulf oil-and-gas producers enjoy,” al-Sudani told WSJ, “we strive to “see Iraq have a good relationship with Iran and the US.” Stating, “President Biden is different from other presidents in that he knows the situation in Iraq completely,” al-Sudani thinks it might be the foundation to build an excellent relationship between Baghdad and Washington. al-Sudani’s views regarding keeping the US and NATO forces in Iraq are deemed significant since he has been publicly silent about this issue until now. After the killing of Iranian commander Qassem Soleimani in a US drone strike on Baghdad, the Iraqi parliament voted a resolution to withdraw American troops from the country. Currently, 2,000 American troops in Iraq under the umbrella of NATO are training the Iraqi armed forces.

According to Foreign Policy, al-Sudani’s public support for the presence of US troops originates from the threat of ISIS. al-Sudani’s words, however, are not an unexpected turn; instead, they reflect a steady movement toward the United States in recent years. The article’s title is also noteworthy: “The New Iraqi Leader tilts the scales toward the USA.” Former US officials told Foreign Policy that even amid the tension escalating after the assassination of Soleimani, Iraqi officials had expressed support for the US military mission behind closed doors to ensure to defeat of ISIS and counter Iranian influence. “US presence that was hanging by a thread in pre-pandemic Iraq, at the tenuous invite of the Baghdad government, now appears to be there to stay—indefinitely,” interprets the journal the situation that became concrete upon al-Sudani’s statement. Although al-Sudani created uproar in Iraq, the more significant problem is that Centcom has no planning or vision about the future of the US-Iraq relationship.

“The presence of foreign military forces in this country is a very dangerous issue,” remarked Nouri al-Maliki, the leader of the Shiite alliance that brought al-Sudani to the office and kept him in power. It is remarkable that Maliki’s statement followed al-Sudani’s controversial comment.

Then, why did al-Sudani express his public support for the presence of the US troops in the country “independently” of the coalition behind his power and despite growing anti-American sentiments in Iraqi society over the last several years?

The reason for the crisis: US sanctions

Sudani employs the existence of ISIS to justify his statement, but it seems that the underlying issue is the currency crisis that shook the Iraqi markets. Unlike other oil-rich countries, the second largest oil producer of OPEC after Saudi Arabia, Iraq stands out for its economic problems and the massive social protests these sparked. The current crisis, however, is not the same as the usual mechanism of bribery and corruption that plagues Iraq. It has everything to do with US sanctions. The restrictions put into practice by the US to prevent the illegal allocation of dollars for the interests of other US-sanctioned countries, especially Iran, have triggered a severe dollar crisis in the country.

The USA has implemented a “regulation” to the system that allows the daily foreign exchange auctions of the Iraqi Central Bank, which has been in effect for 20 years since the invasion and permitted banks to sell dollars without any restrictions. In November 2022, the US Federal Reserve (FED) started enforcing strict screening on the operations of Iraqi commercial banks, such as requiring all clients to disclose their identities before a transfer of funds could be made. In fact, these measures were implemented after almost two-year planning by the Central Bank of Iraq, the US Department of the Treasury, and the FED. However, in spite of all the planning, since the strict regulations have been in effect, more than 80% of daily dollar transactions have been blocked. As a result of the slowdown in dollar transactions, the markets have rushed into the dinar, ultimately creating a double-sided “currency crisis.”

Protests in rise

Due to the crisis, the value of the Iraqi dinar has weakened vis-à-vis the dollar, leading to a sharp rise in food prices. Over the currency drop, on January 23, al-Sudani dismissed Central Bank Governor Mustafa Ghaleb Mukheef on his request, and Muhsen al-Allaq replaced him. After a slight decrease in the exchange rate following the replacement of the office at the Central Bank, it has begun to increase again quickly. The official rate for Iraqi citizens set by the Central Bank stands at 1,470 dinars to the dollar. Established by the Central Bank of Iraq is 1470 Iraqi dinars per dollar, while on the black market and free market, it ranges from 1590 to 1620 dinars.

Iraqis slowly started to protest against the devaluation of the dinar. The protesters gathering outside the Central Bank called on the government to halt the depreciation of the dinar. Those demonstrating in Iraq called on al-Sudani’s government to do everything they could to bring down inflation. Mainly, they demanded that staples like eggs be made more affordable. Protesters from south Iraq also participated in the demonstration in Baghdad.

The ruling coalition blames the US

Hadi al-Amiri, the leader of the Fatah Coalition and a partner of the Iraqi government, accused the US of using the dollar as a weapon to starve the people in Iraq. “Since the reserves of this country’s central bank are at the Federal Reserve’s disposal, Iraq lacks economic independence. Everyone now knows how the Americans use the dollar as a weapon to starve people. The Americans are currently putting the most pressure on Iraq to prevent its relations with Europe and other countries of the world,” said al-Amiri.

Maliki, the head of the same coalition, claims that the United States uses the dollar as a global weapon: “They try to destabilize it by using dollar paper.” Maliki, however, sees the United States as the key to solving the issue: “There is no solution to the dollar crisis except by controlling the dollar and understanding with the American side.”

Here, the reason behind al-Sudani’s controversial statement that US soldiers are required in Iraq is nothing but Maliki’s proposed solution. al-Sudani is trying to find a way to ease the effects of the dollar crisis. In this regard, he plans to send the Foreign Minister to Washington at the start of February, followed by his own visit. The Iraqi premier may try to negotiate looser US screening on the movement of dollars or at least a postponement of such controls. As the Prime Minister of a coalition accused of being “pro-Iran” and even a “puppet of Iran,” al-Sudani may have hoped that sending sound signals to the United States would facilitate reconciliation. Against this backdrop, Foreign Affairs’s inference that the “The New Iraqi Leader tilts the scales toward the USA” seems an unrealistic expectation.

The dollar is indeed a powerful winning tool in the hands of the USA. The United States may offer the Iraqi government a short-term solution to the pressing crisis. The country is still nothing but one of the major oil producers, although the post-invasion system in Iraq is plagued by bribery, corruption, and smuggling. The greater challenge is that Iraq lacks the political will to combat the issue and blow the cobwebs away.

Middle East

Israeli envoy warns red line crossed over Turkish moves in Syria

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Israel’s Ambassador to the US, Yechiel Leiter, stated that Tel Aviv received clear intelligence showing Türkiye planned to expand its military presence in Syria significantly, an action Israel deemed the crossing of a “red line.”

Speaking to The Jerusalem Post, Leiter said: “We are not looking for an escalation or a war with either Türkiye or Syria. But a red line was crossed.”

His remarks follow an Israeli air strike on the Abu al-Duhur Airbase in Idlib, Syria, which drew swift criticism from both the Syrian and Turkish governments.

Leiter continued:

“This was seen as a blatant Turkish violation of the understandings. Those who needed access to the intelligence received it. Those who needed to know what was going to happen knew. We made it clear that this was contrary to our understandings, and that is why Israel acted as it did.”

According to Leiter, the failure to heed these warnings led Israel on Tuesday to strike the Abu al-Duhur airbase, where Turkish forces were allegedly expected to arrive.

Syrian officials stated that the airbase was targeted by at least eight strikes, whilst subsequently released satellite imagery revealed damage to the runways.

Leiter stated that the Turkish move contradicted understandings reached during the Biden administration between Israel and the administration of Syria’s new leader, Ahmed al-Sharaa, which “froze the existing situation” in the country.

According to Leiter, these understandings were reaffirmed during a meeting held in Paris in January 2026, attended by Syrian Foreign Minister Asaad al-Shaibani, US Special Envoy for Syria Tom Barrack, Leiter, then-National Security Council head Gil Reich, and Netanyahu’s military secretary Roman Gofman (now director of Mossad).

Leiter continued:

“This freeze means we do not act as long as the Turks do not act, and they do not force us to withdraw. It is also important to understand: whilst we maintain a security zone of only 78 square miles [approximately 202 square kilometres] in Syria, the Turks have, over the past few years, slowly annexed 3,500 square miles in northern Syria—roughly 5% of the country’s territory.”

According to The Jerusalem Post, with the exception of Tom Barrack, the US Special Envoy for Syria and Ambassador to Türkiye, senior US officials did not condemn the Israeli strike in Syria.

“The administration’s policy is that the previously agreed freeze should continue; that is why even Trump did not condemn the strike,” Leiter said.

Despite the tensions, Leiter emphasised Israel’s understanding that Syria is not seeking an escalation or war.

“It is clear to us that the Syrians do not want a confrontation with us. That is why we tell the Turks not to create conflict. There are multiple indications that the move planned by Türkiye was imposed on the Syrians,” the ambassador said.

Leiter argued that this apparent discord was also evident in the conflicting statements issued by Türkiye and Syria following the strike:

“Whilst Syrian Foreign Minister Shaibani acknowledged that a Turkish delegation was in Syria a few days before the strike, the Turks denied this. They need to resolve this matter between themselves.”

Leiter did not rule out a return to direct talks with Syria, as conducted in the past, but said conditions must be suitable.

“Negotiations can be resumed. We want to continue the face-to-face dialogue we previously conducted with the Syrians,” Leiter said.

Leiter added that Israel is not seeking a conflict with Türkiye and remains open to dialogue with Ankara.

“We are certainly open to dialogue with them, but judging by statements from senior officials in the country, they would prefer to wipe Israel off the map,” the Israeli diplomat said.

Alleging that Türkiye hosts Hamas leaders and “channels funds” to Hezbollah and Hamas, Leiter argued that it was inappropriate at this juncture for “Türkiye to begin expanding its influence in Lebanon and Syria.”

Leiter continued:

“Under current conditions, Türkiye cannot be a force that helps bring calm to the region. If only we could return to the state of relations between Jerusalem and Ankara from several decades ago. Back then, we would have been open to Türkiye’s influence in the region. But in an environment where Türkiye funds terrorist organisations, an increase in its regional influence makes no sense.”

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UAE halts trade with Iran after reported ballistic missile attack

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The United Arab Emirates (UAE) has suspended commercial and economic relations with Iran after announcing that Tehran launched two ballistic missiles towards the Gulf state on Tuesday.

The UAE Ministry of Defence stated that air defence systems detected two ballistic missiles launched from Iran towards its territory.

The incident is considered Tehran’s first direct attack targeting the Gulf country since May.

The event prompted emergency telephone alerts to be sent to residents across the UAE.

The Ministry of Defence stated that assessments indicated the missiles targeted maritime traffic, adding that one missile fell into the sea outside UAE territorial waters and the other landed within territorial waters.

The UAE Ministry of Foreign Affairs later announced that “in light of regional tensions that undermine regional and international peace and security, all trade, commercial relations, and financial transactions with Iran have been halted until further notice.”

Iran denied any involvement in the missile attacks. Iranian Foreign Ministry Spokesperson Esmail Baghaei said the claim “contradicts the principle of good neighbourliness and undermines ongoing efforts to strengthen trust among regional countries.”

The missile strikes occurred after a period in which the UAE and Tehran had sought to reduce tensions between the two countries.

The bulk of Tehran’s military retaliation targeted neighbouring Gulf states, which Iran accused of facilitating US-Israeli attacks.

The UAE bore the heaviest brunt of Iran’s attacks against US allies in the Gulf, sustaining nearly 3,000 missile and drone strikes.

Exhibiting the most hawkish stance against Tehran among its Gulf neighbours, the UAE responded with dozens of strikes against Iran.

However, tensions between the UAE and Iran eased following a memorandum of understanding signed between Washington and Tehran in June.

After the agreement began to unravel in early July, Iran largely redirected its attacks towards Bahrain, Kuwait, and Jordan.

In recent months, the UAE reactivated diplomatic and economic channels with Iran while simultaneously strengthening its military ties with Israel and the US.

Tuesday’s missile strikes threaten to disrupt the atmosphere of normalisation that had returned to the UAE.

While Dubai’s financial district was once again filling with bankers, certain commercial activities between the emirate and Iranian ports had resumed.

Furthermore, several Iranian flights to the UAE had quietly resumed.

UAE authorities had also begun permitting the return of approximately 20,000 Iranians holding UAE residency permits who were outside the country when the war began.

UAE officials have repeatedly emphasised that the country seeks to avoid being drawn further into a broader regional war.

Nevertheless, efforts to de-escalate tensions between the UAE and Iran have come under increasing strain in recent weeks.

This month, the UAE accused Iran of attacking vessels belonging to the Abu Dhabi National Oil Company in the Strait of Hormuz.

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US considers land blockade on Iran involving Türkiye and neighbours

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To date, the US has imposed sanctions on thousands of Iranian individuals and legal entities; however, the Tehran administration continues to bypass these restrictions by rapidly establishing new structures to replace those that have been blocked.

In an assessment citing expert opinions published by the Reuters news agency, the current situation was likened to a game of whack-a-mole.

Whack-a-mole is known as a game of agility and reflexes based on the concept of hitting plastic figures with a mallet as they pop up unexpectedly from their holes.

Speaking to the agency, experts outlined other options that Washington could deploy to increase pressure on Tehran and raise the efficacy of sanctions.

Potential measures include restrictions targeting independent Chinese refineries, known as “teapots,” which account for a quarter of China’s oil refining capacity.

China purchases more than 80% of the oil exported by Iran, and these refineries process the vast majority of those shipments. Nevertheless, these facilities have limited ties to the US financial system, rendering them partially protected against secondary sanctions.

Another option on the table is increasing pressure on major Chinese banks. The US Department of the Treasury’s Office of Foreign Assets Control (OFAC) has applied secondary sanctions to small firms based in China and Hong Kong accused of executing billions of dollars in transactions for Iranian oil.

The agency has also warned two large banks, though it has not yet included them on its sanctions list.

While taking steps against major banks could deter other financial institutions, such actions carry the risk of Beijing enacting retaliatory measures. Washington seeks to avoid such tension ahead of a potential meeting between US President Donald Trump and Xi Jinping in September.

Experts are also evaluating the possibility of enforcing a land blockade with the participation of Iran’s neighbours: Iraq, Türkiye, Pakistan, Azerbaijan, Turkmenistan, and Armenia.

The Trump administration holds various leverage mechanisms against such nations, including Pakistan, which is requesting a $10 billion swap line, and Türkiye, which seeks to rejoin the F-35 program. Analysts express, however, that implementing such a blockade on the ground and generating the expected pressure inside Iran would be difficult.

Trump has repeatedly voiced threats to impose secondary tariffs on countries that trade with Iran; however, the US Supreme Court struck down the legal basis for such measures.

On the other hand, a anti-Russia “crushing” sanctions bill passed by the Senate includes new restrictions on Iran and grants Trump tariff authority.

This bill must also pass a vote in the House of Representatives; however, the text faces opposition from both Democrats and certain Republican lawmakers.

US Treasury Secretary Scott Bessent announced in mid-August that Trump would disclose new measures designed to raise Iran’s economic isolation to an unprecedented level.

Stating that the US President had instructed the re-establishment of the maximum economic pressure policy against Tehran, Bessent said, “We have moved from Epic Fury to Economic Fury.”

Following Bessent’s statements, Bloomberg noted that Tehran has learned to manage the consequences of a naval blockade and thousands of restrictions. According to the agency’s analysts, the principal obstacle facing Washington is the close economic relationship between Iran and China; indeed, Beijing secures more than 90% of Iranian oil exports. Sanctioning the entities facilitating these purchases would directly reduce Tehran’s oil revenues, yet the US is avoiding this step for now.

Maritime traffic in the Strait of Hormuz remains restricted. On August 11, Iran conveyed its conditions for lifting the blockade in the strait to the US through intermediaries.

Tehran’s conditions included an end to threats and military actions, the lifting of the blockade and sanctions, compensation for damages, and the release of frozen assets.

On August 14, Trump claimed that following the end of the war with Iran, he would declare the Strait of Hormuz to be US territory. Responding to these statements, the Iranian Foreign Ministry warned that the Strait of Hormuz could not be seized “by a tweet, an aircraft carrier, an executive order, or a campaign speech.”

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