Iraq may show how US can squeeze Iran's trade partners

Iraq's reliance on US dollars for its oil revenues and finances positions it as a potential example for the United States in its strategy to pressure countries trading with Iran. Washington has already sanctioned several Iraqi banks accused of dealing with Tehran, though it has so far avoided measures that would cripple the Iraqi economy.

US President Donald Trump has warned of severe consequences for any nation providing an economic lifeline to Iran. This threat could extend to Iran's major trading partners, including China, the United Arab Emirates, Turkey, India, Pakistan, and Oman. US Treasury Secretary Scott Bessent recently announced "an economic onslaught" against Iran, vowing to target its trading partners.

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an economic onslaught

The US has held significant influence over Iraq's economy since the 2003 invasion, largely controlling its oil revenue dollars through the Federal Reserve Bank of New York. This gives Washington considerable leverage over Baghdad's affairs. Iraq, a rare ally to both the US and Iran, holds over $100 billion in reserves in the US and depends on Washington's cooperation for its financial operations.

Past US actions against Iraq include halting a $500 million cash shipment and suspending security cooperation to pressure Baghdad over Iran-backed militias. Washington has also reportedly threatened Iraqi politicians with sanctions, including on oil revenues, if such groups join the next government. These pressures have increased the costs and risks of financial dealings with Iran for Iraqi institutions, forcing better compliance. However, Iraq's economic ties with Iran, extending beyond financial systems, remain, leaving Baghdad caught between its dependence on both nations. Unlike larger economies like China or Turkey, Iraq has fewer alternatives and less financial resilience, making it more vulnerable to US pressure.

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Countries such as China or Turkey have larger economies and more room to absorb pressure. Iraq has fewer alternatives and significantly less financial resilience.