The United States has issued a stark financial ultimatum to Iraq regarding the formation of its next government, according to confirmation from an Iraqi official to Middle East Eye. Washington has threatened to sever Baghdad’s access to its oil revenue reserves held at the Federal Reserve Bank of New York if Iranian-aligned paramilitary figures are incorporated into the new administration.
This financial pressure campaign emerges as political negotiations intensify following Iraq’s November parliamentary elections. The Financial Times initially reported the specific threat to cut off Iraq’s dollar deposit supply—a crucial mechanism that has existed since the 2003 U.S. invasion. Under this arrangement, Iraq’s oil export proceeds are stored in the U.S., with monthly shipments of hard currency airlifted to Baghdad, providing Washington with significant economic leverage.
The Trump administration has previously demonstrated willingness to utilize this financial weapon. During the 2020 crisis following the assassination of Iranian commander Qassem Soleimani, when Baghdad threatened to expel U.S.-led coalition forces, American officials similarly threatened to restrict Iraq’s access to its dollar reserves.
Joshua Harris, the chargé d’affaires at the U.S. embassy in Baghdad, has personally delivered these warnings to Iraqi officials and influential Shia leaders. The absence of a formal ambassador—with Trump appointing Mark Savaya, a former legal cannabis dealer from Michigan, as special envoy—has placed Harris as the top-ranking State Department official in Iraq.
The tension escalated particularly after the election of Adnan Fayhan as first deputy speaker of parliament last month. Fayhan, a former member of the Iranian-backed Asaib Ahl al-Haq (AAH) militia, represents the type of political figure Washington seeks to exclude. The U.S. embassy reportedly suspended meetings with officials who supported Fayhan’s election and provided Iraqi counterparts with a list of unacceptable MPs.
Despite these pressures, Iraq’s political landscape remains complex. Prime Minister Mohammed al-Sudani’s coalition emerged victorious in November’s elections but lacks sufficient seats to independently form a government. Meanwhile, the U.S. military presence has significantly diminished, with recent announcements of “full withdrawal” from Iraq’s military facilities excluding the Kurdish region, where approximately 1,500 troops remain stationed.