BAGHDAD (Realist English). The United States has warned senior Iraqi politicians that it could impose sanctions on the Iraqi state — including potentially restricting access to critical oil revenues — if Iran-backed armed groups are included in the country’s next government, four sources told Reuters.
The warning, delivered repeatedly over the past two months by US Charge d’Affaires Joshua Harris, marks the clearest escalation yet in President Donald Trump’s campaign to curb Tehran’s influence in Iraq. Baghdad has long sought to balance relations with both Washington and Tehran.
According to three Iraqi officials and a source familiar with the discussions, Harris conveyed the message directly to senior Iraqi officials and influential Shi’ite leaders, and indirectly to some heads of Iran-linked factions. The sources spoke on condition of anonymity due to the sensitivity of the talks. The US embassy in Baghdad did not respond to requests for comment.
Since returning to office, Trump has stepped up pressure on Iran and its regional allies, including through Iraq, which Tehran views as a vital economic lifeline under sanctions. US and Iraqi officials say Iran has long used Iraq’s banking system to bypass restrictions, prompting Washington to sanction more than a dozen Iraqi banks in recent years.
However, the United States has never previously restricted Iraq’s oil revenue flows — a key lever of influence. Iraq, a top OPEC producer, deposits most proceeds from oil exports in an account at the Federal Reserve Bank of New York, giving Washington de facto control over a crucial channel of Iraqi state income since the 2003 invasion.
Among those who received the US warning were Prime Minister Mohammed Shia al-Sudani, Shi’ite leaders Ammar Hakim and Hadi al-Ameri, as well as Kurdish leader Masrour Barzani, according to the sources.
The message followed Iraq’s November parliamentary elections, in which Sudani’s bloc emerged as the largest but Iran-backed factions also increased their representation. US officials reportedly focused on 58 members of parliament viewed by Washington as linked to Iran.
“The American line was that they would suspend engagement with the new government if any of those 58 MPs were represented in cabinet,” one Iraqi official said, adding that US officials explicitly referenced suspending dollar transfers. Coalition talks over cabinet formation could still take months.
A US State Department spokesperson told Reuters that Washington supports Iraqi sovereignty but said that “there is absolutely no role for Iran-backed militias that pursue malign interests, cause sectarian division, and spread terrorism across the region.” The spokesperson declined to comment directly on the reported sanction threats.
One flashpoint cited by the sources is Adnan Faihan, a member of the Iran-aligned armed and political group Asaib Ahl al-Haq, who was elected first deputy speaker of parliament in late December. US officials opposed his appointment, the sources said.
In what Iraqi officials described as a sign of mounting pressure, AAH leader Qais al-Khazali has indicated to US interlocutors a willingness to remove Faihan from the post, though he remains in office. Khazali was sanctioned by Washington in 2019 over alleged human rights abuses and attacks on US forces.
Analysts say the threat to restrict access to US dollars is taken seriously in Baghdad. “The US has significant leverage,” said Renad Mansour of Chatham House, noting that Iraq’s oil-based economy depends heavily on dollar settlements. “The loss of access to US dollars would be extremely damaging.”
The pressure campaign comes as Washington expands its use of financial controls elsewhere, including placing Venezuelan oil revenues into US-controlled accounts following the capture of Nicolas Maduro, underscoring a broader strategy of leveraging access to dollar systems to shape political outcomes abroad.