BAGHDAD/WASHINGTON — The United States has halted shipments of U.S. dollars to Iraq and frozen some security cooperation programs with Baghdad as it pressures Iraqi authorities to dismantle Iran-backed militias, according to Reuters, which cited a Wall Street Journal report and U.S. and Iraqi officials, April 22, 2026. The reported move would block nearly $500 million in banknotes tied to Iraqi oil-sale proceeds held at the Federal Reserve Bank of New York, turning a crucial financial channel into a pressure point.
Reuters said it could not independently verify the report, and neither the U.S. Treasury Department nor the Federal Reserve immediately commented. The report said Washington also told Baghdad it was suspending funding for some counterterrorism and military training programs until militia attacks stop and Iraqi authorities move against the armed groups.
The timing matters. Earlier this month, Washington summoned Iraq’s ambassador after a drone strike hit a major U.S. diplomatic facility in Baghdad and accused Iraqi “terrorist militias” aligned with Iran of carrying out multiple drone attacks near the diplomatic support center and Baghdad airport. The State Department said the episode underscored “the Iraqi government’s failure to prevent these attacks.”
The latest step also fits a broader pattern. In January, Reuters reported that U.S. officials had warned senior Iraqi politicians that access to the country’s oil-dollar lifeline could be squeezed if Iran-linked armed groups were allowed to deepen their role in the next government. That warning made clear that Washington views Iraq’s dollar pipeline not just as a technical banking matter, but as strategic leverage.
Why Iraq dollar shipments matter now
Iraq depends on access to U.S. dollars not only to stabilize its currency market but also to finance imports in an economy where the greenback still plays an outsized role. Because Iraqi oil revenues are held in New York and dollar transfers pass through a system closely watched by U.S. authorities, Washington can tighten or loosen the flow with immediate political and economic consequences.
That is why any disruption in cash shipments matters beyond symbolism. Even when restrictions are aimed at militias, money laundering, or sanctions evasion, the spillover can hit the dinar, strain importers and push more demand into the black market.
The longer arc behind the squeeze
This pressure campaign did not begin this week. A Reuters report from January 2023 said the New York Fed had already introduced tighter controls on Iraqi banks’ dollar transactions to stop the illegal siphoning of dollars to Iran, creating early tension for Prime Minister Mohammed Shia al-Sudani. By early 2024, the clampdown had gone further: Reuters reported in February 2024 that Iraq barred eight local banks from U.S. dollar dealings as part of a wider effort to curb fraud, money laundering and the misuse of U.S. currency.
Seen in that context, the current halt looks less like an abrupt break and more like an escalation of a multi-year campaign. What is new is the sharper linkage between Iraq’s access to dollar cash, U.S. security cooperation and Baghdad’s willingness to confront Iran-backed militias after direct attacks on American facilities.
For Iraq, the immediate question is whether it can prevent this dispute from feeding back into the currency market and broader public confidence. For Washington, the gamble is that financial pressure will do what years of warnings and narrower banking restrictions have not: force Baghdad to rein in armed groups that remain deeply embedded in Iraq’s political and economic system.
