Iraq's central bank will prohibit five additional local banks from U.S. dollar transactions after meetings with U.S. Treasury officials to combat money laundering, dollar smuggling, and financial violations. This follows last year’s ban on eight banks after similar discussions.
The decision came after Dubai meetings between the Central Bank of Iraq, the U.S. Treasury, and Federal Reserve officials. Iraq, OPEC's second-largest oil producer, holds over $100 billion in reserves in the U.S., making its financial stability reliant on Washington's cooperation.
The ban affects Al-Mashreq Al-Arabi Islamic Bank, United Bank for Investment, Al Sanam Islamic Bank, Misk Islamic Bank, and Amin Iraq For Islamic Investment and Finance, along with payment firms Amawl, AL-Saqi Payment, and Aqsa Payment. These institutions can still operate and conduct transactions in other currencies but are restricted from dollar operations, impacting their international transactions.
The current Iraqi government, backed by Iran-linked political groups and militias, faces increasing pressure as U.S. President Donald Trump reinstates his "maximum pressure" policy on Iran. Iran, which heavily relies on Iraq for economic support and hard currency, maintains significant influence through Shi'ite militias and political alliances.
Reuters previously reported on a fuel oil smuggling network in Iraq, generating $1 billion annually for Iran since Prime Minister Mohammed Shia al-Sudani took office in 2022. While Western officials praised Sudani's efforts to implement financial reforms, tensions are expected to rise under Trump's renewed sanctions approach.
The Central Bank of Iraq and the U.S. Treasury have yet to comment on the latest ban.