US halts Iraq financing and security ties pending formation of acceptable government

The United States has suspended all financing activities and security coordination with Iraq until a new government acceptable to the Washington administration is established, according to a report published by Al-Hadath on April 20.

The restriction reportedly includes the regular shipments of cash dollars to the Central Bank of Iraq (CBI).

According to the Saudi-based news channel, the US administration has presented an additional condition for the continuation of security cooperation. Washington is reportedly demanding the disclosure of individuals believed to be involved in bombing attacks targeting the US Embassy in Baghdad.

Meanwhile, the Central Bank of Iraq issued an official statement on Monday denying the allegations reported by Al-Hadath.

The mechanism controlling the flow of foreign currency in the Iraqi economy is based on an arrangement in effect since 2003, established during the tenure of Paul Bremer, the head of the Coalition Provisional Authority.

Under this system, all oil revenues earned by Iraq are deposited directly into an account held at the Federal Reserve Bank of New York. This structure grants the US government the authority to directly determine and oversee the amount of dollars transferred to the Central Bank of Iraq.

Within this framework, the Iraqi Ministry of Finance must submit formal applications to the US Treasury Department to obtain the necessary cash funds. Washington maintains the authority to approve or reject these requests based on its own established criteria.

This critical mechanism, which facilitates the transport of pallets of cash dollars to Baghdad every month, serves a vital function in enabling Iraq to meet essential expenditures such as public sector salaries, food imports, and medical supplies.

The report noted that Washington has previously slowed or reduced the volume of these transfers during periods when it found the Baghdad government’s regional policies to be at odds with its own strategic objectives.

Among the most sensitive issues in this context are the economic sanctions imposed on Iran. For Iraq, Iran is not only one of its most significant trade partners but also the primary supplier of the natural gas essential for the country’s electricity generation.

More than five months have passed since the parliamentary elections in Iraq, yet the office of the prime minister remains vacant. The Coordination Framework (CF), the largest bloc of Shiite parties in parliament, has been unable to reach a consensus on a name for the new premier.

The US administration reportedly opposes the continuation of current Prime Minister Mohammed Shia al-Sudani in his post and is similarly unfavorable toward the return of former Prime Minister Nouri al-Maliki to power.

While the US administration views Maliki as a figure close to Iran, former US President Donald Trump also shared his views on the Truth Social platform following the strengthening of Maliki’s candidacy. Characterizing Maliki’s previous tenure as a period of “poverty and total chaos,” Trump stated that the US would cut aid to Iraq if he were to be re-elected.

The Coordination Framework, which is represented by 185 deputies in the 329-seat Iraqi parliament, is expected to determine its prime ministerial candidate by April 26 in accordance with the legal process.