US Warns Iraq Over Iran-Backed Proxies, Reportedly Blocks Cash Transfers

The Trump administration has intensified punitive measures against Iraq, aiming to force the disbandment of Iranian-backed militias following repeated attacks on U.S. personnel and facilities. These measures include halting U.S. dollar shipments to Baghdad, a significant escalation in diplomatic pressure amid ongoing regional tensions.

As part of this economic leverage, the administration has reportedly blocked a cargo-plane delivery of nearly $500 million in U.S. banknotes, representing proceeds from Iraqi oil sales held in Federal Reserve Bank of New York accounts. According to The Wall Street Journal, this marks the second such blocked delivery since the start of the U.S.-Israel conflict with Iran in late February.

A State Department spokesperson emphasized the administration’s position, telling Fox News Digital: “The United States has consistently been clear we will take all measures to counter Iran’s destabilizing activities in Iraq, protect U.S. interests against Iran-aligned terrorist militias in Iraq, and make clear our concerns about the Iraqi government’s failure to prevent this terrorism.”

The administration’s focus is on dismantling the Popular Mobilization Force (PMF), an umbrella organization of militias largely loyal to Iran. These groups have launched attacks not only against U.S. assets but also against Iraqi Kurds, who remain crucial American allies in the Middle East.

Beyond financial restrictions, the U.S. has also suspended security cooperation programs with Iraq’s military, signaling a comprehensive approach to pressuring Baghdad into action against these Iran-backed groups.

Iraqi officials have pushed back against this pressure, with one telling Fox News Digital that addressing armed factions requires “careful and gradual approaches” due to the complex political, security and social dimensions involved. The official noted that some of these factions hold significant political and popular influence within Iraq.

“External measures that fail to take into account the particularities of this reality may lead to counterproductive outcomes and negatively affect internal balances, which would not serve the stability efforts undertaken by Iraq and its partners, foremost among them Washington,” the Iraqi official added.

A senior Kurdish official supported Washington’s more assertive approach, telling Fox News Digital: “The dollar pause is part of the nuclear option in the Treasury Department, and the Americans have always been reluctant to leverage it. The Iraqis, meanwhile, have been cruel to their partners — Americans and the KRG [Kurdish Regional Government], as this war has shown — and now Washington is drawing a red line.”

The timing of these measures is particularly significant as Iraq approaches the selection of a new prime minister. The Trump administration has explicitly opposed the return of former Iraqi Prime Minister Nouri al-Maliki due to his close ties with Tehran.

“In the end, though, it’s still the Shia house that chooses the premiership. They have some latitude, but ultimately, they will select a candidate acceptable to both Iran and the United States,” the Kurdish official explained. “This time, however, Washington appears intent on influencing the outcome rather than just observing it.”

The economic pressure carries substantial weight because Iraq’s economy depends heavily on oil revenues, which are processed through the U.S. financial system. By controlling access to these funds, Washington can exert considerable influence over Iraqi politics and security policies.

Entifadh Qanbar, a former spokesman for Iraq’s deputy prime minister, warned about the imminent dangers posed by the PMF to American interests, noting that the Iraqi government provides these groups with state identification cards, vehicles, and official government license plates. This enables them to enter Baghdad’s high-security Green Zone and potentially threaten the U.S. Embassy or other institutions.

Underscoring the severity of the threat, the U.S. Department of Justice recently announced a $10 million bounty for information on the leader of the pro-Iranian militia Harakat Ansar Allah al-Awfiya (HAAA), which has been involved in attacks across Iraq, including an April 8 ambush of U.S. diplomats near Baghdad International Airport.

As tensions escalate, the Biden administration’s approach marks a significant shift in U.S.-Iraq relations, leveraging economic and security cooperation as tools to influence Baghdad’s stance toward Iranian proxies operating within its borders.