Iraq’s freeze-and ...
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When the Trump administration came to power, the pressure became significantly harsher through sanctions and overt threats. Given Iraq’s fear of renewed unrest, the government tried to maintain balanced relations with the US. As a result, it undertook several financial and banking measures to ensure cooperation with Washington in the monetary sphere.
Iraqi officials argued that they had no alternative, they could not ignore the US-dominated international financial system, especially since Iraq urgently needs reconstruction after the war against Daesh. That is why Baghdad has aligned its financial system with international sanctions regulations.
Regarding resistance groups, US authorities have repeatedly monitored Iraqi channels and warned Baghdad that continuing military or financial support for Hezbollah would expose Iraq to serious retaliation.
Iraqi officials have repeatedly stressed in interviews that Baghdad does not wish to take sides; the government aims to keep out of the confrontation while adhering to the international banking system.
As noted, after the Central Bank’s announcement, even the bank itself appeared unsure how to proceed, not expecting the decision to appear in the gazette, a publication that ordinary citizens rarely monitor. The bank was reportedly caught off guard and sent a letter to the prime minister seeking clarification. But following street protests and public outrage, the prime minister, who was already under pressure, quickly moved to withdraw the measure.
Attention now shifts to the upcoming FATF plenary meeting, since the committee had invoked not only Resolution 1373 but also the CFT, which allows states to define terrorism based on domestic law. Because neither of the two groups is listed as terrorist organizations inside Iraq, removing them from the committee’s list will not trigger major financial consequences, such as the cancellation of investment contracts. No disruption of economic ties with Iraq is expected as a result of their removal either.
Can this be seen as part of the Iraqi government’s effort to assert political authority and independence in the face of Western pressure?
Some observers have long stressed that the Sudani government has no interest in defying international financial norms. Baghdad is seeking to establish joint banks with other countries and to expand electronic payment systems, a move that would reduce cash usage and directly target networks that have been attempting to circumvent western sanctions.
If Iraqi banks shift to fully digitized banking, financial flows become entirely transparent. Even now, Iraqi banks tightly monitor all financial transactions by individuals and companies, while the US sometimes gains information about transactions, creating the risk of sanctions against those involved.
Therefore, whether or not these two groups appear on the committee’s list does not change the core reality: Iraq’s banking system, tied to the international financial network, will not allow non-state armed groups to conduct high-volume financial transfers.
This financial environment has already reassured foreign investors, who have begun forming partnerships in Iraq.
Thus, any Iraqi government, given the intense pressure from Western states, cannot simply leave the door open for large-scale financial support to armed groups.
One of the main reasons why digital currency systems and informal money-exchange networks are banned in Iraq, with heavy penalties and even criminal sentences, is precisely because they can be used to get around sanctions and to finance armed groups.