U.S. may use Iraq as template to cut off Iran's trade partners
Washington is considering Iraq as a model for pressuring nations that keep doing business with Iran, aiming to push them out of the dollar system.
U.S. officials see Iraq as a potential test case for forcing countries that continue trading with Iran to abandon the dollar-based financial network. While Washington has already blacklisted a number of Iraqi banks, it has steered clear of actions that would devastate the Iraqi economy, a key regional ally. Treasury Secretary Scott Bessent declared an "economic onslaught" targeting Iran’s partners, though he did not specify which nations.
Because the United States controls the flow of Iraqi oil revenues through the Federal Reserve Bank of New York, it wields considerable influence over Baghdad, which holds over $100 billion in U.S.-based reserves. Iraq’s trade with Iran topped $10 billion in 2025, driven mainly by food, consumer goods and natural-gas payments of $4-5 billion a year, but has fallen in 2026 amid heightened security risks. Analysts argue that Iraq’s limited alternatives make it especially susceptible to U.S. pressure, and suggest that offering technical assistance to Iraqi financial institutions could yield better results than outright sanctions.
Why it matters
The strategy could reshape how the U.S. curtails Iran’s economic lifelines and affect global trade flows.
How this story developed
- Aug 18 Brent climbs toward $92 as UAE missile alert sparks Gulf tension
- Aug 19 Only six vessels crossed the Strait of Hormuz on Tuesday, down from nine the day before, as shipowners wait for definitive guidance on reopening after the Iran war blockade.
- Aug 19 UAE announced a trade suspension with Iran after detecting two ballistic missiles.
- Aug 20 U.S. naval escorts have increased, moving roughly five million barrels per day in July, up from about four million in June.
- Aug 23 Since Iran shut the strait on March 1 in retaliation for joint US-Israeli strikes, daily transits fell from roughly 95 to single-digit levels. A June US-Iran agreement briefly lifted the count to 36, but numbers slipped again after fighting resumed in July. Ships now use two separate routes—one approved by Tehran near Iran’s coast and another south of Oman that may be mined—while most passages are untrackable because of disabled transponders. The International Maritime Organization reports thousands of crew members remain aboard vessels unable to leave.
- Aug 25 A senior Pakistani delegation met with Iran's president in Tehran for talks described as very positive.
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