Five Iraqi Banks to Be Banned from Dollar Transactions; Increased Pressure on Iran's Financial Network

Two informed sources in Iraq announced on Sunday, February 17, that the Central Bank of Iraq intends to prohibit five more Iraqi banks from conducting transactions in dollars. According to Reuters, Iraqi banks are considered 'lungs for breathing' for the economy of the Islamic Republic of Iran, and Tehran has been accused for at least the past decade of abusing the Iraqi banking network to bypass U.S. sanctions. One of these two sources told Reuters that the decision to prevent dollar transactions in five Iraqi banks was made following a recent meeting between U.S. Treasury officials and the Central Bank of Iraq. The meeting last week between U.S. financial officials and Iraqi banking officials in Dubai aimed to combat money laundering, prevent dollar smuggling, and other violations. The names of these five Iraqi banks are: 'Al-Mashreq Arab Islamic Bank', 'United Investment Bank', 'Al-San'am Islamic Bank', 'Misk Islamic Bank', and the 'Amin Iraq Group for Islamic Investment'. According to this report, the decision to ban dollar transactions also includes three money service companies: 'Amwal', 'Al-Saqi', and 'Al-Aqsa'. The Central Bank of Iraq and the U.S. Treasury have not yet responded to this report. Iraq, the second-largest oil producer in OPEC, is one of the few countries that maintains good relations with both the Islamic Republic of Iran and the United States. However, with over one hundred billion dollars in foreign reserves held in the U.S., Iraq is heavily dependent on U.S. goodwill to ensure continued access to its oil revenues and financial resources. The U.S. decision, following Donald Trump's return to power regarding the reinstatement of maximum pressure policies against the Islamic Republic, may also place Iraq in the crosshairs of the U.S. Reuters revealed two months ago that since the rise of Mohammed Shia' al-Sudani, the Prime Minister of Iraq, in 2022, a complex network for smuggling fuel oil has formed and flourished in Iraq, generating at least one billion dollars annually for Iran and its proxy groups. Tehran, relying on its military, political, and economic influence, especially among its Shiite allied groups in Iraq, views this neighboring country as a source for obtaining currency through exports and circumventing U.S. sanctions. The Central Bank of Iraq stated that the banned banks from dollar transactions are allowed to continue operations and conduct transactions in other currencies. However, according to Reuters, this restriction will complicate a large portion of foreign-related banking operations.