Tehran and Baghdad hold talks as five more Iraqi banks face US dollar ban

Senior Iranian and Iraqi officials held consultations in Baghdad as Iraq’s central bank banned five more banks from US dollar transactions following discussions with US Treasury officials.

The move is intended to combat money laundering and dollar smuggling alongside other unilateral financial restrictions that were imposed on eight banks in Iraq last year alongside Baghdad’s attempts to increase pressure on Tehran in regards to access to hard currency.

Iran’s Deputy Foreign Minister for Politics Majid Takht-Ravanchi met with Iraqi Deputy Foreign Minister Mohammad Bahr al-Uloom, along with National Security Advisor Qassim al-Araji and Deputy Speaker of the Iraqi Parliament Mohsen al-Mandalawi.

“Exchange of views on vital and important issues between the two close neighboring countries, who share many commonalities, is a must in this challenging time for the West Asia,” Ravanchi wrote on X.

The ban on Iraqi banks follows meetings in Dubai between officials from Iraq’s central bank, the US Treasury, and the Federal Reserve.

Iraq, which holds more than $100 billion in reserves in the US, is reliant on the approval of Washington in order to keep access to its oil revenue.

The recent restrictions are in line with US President Donald Trump’s reinstatement of his "maximum pressure" strategy on Iran, raising fears that Baghdad may experience increased financial difficulties putting it in between Washington and Tehran.

Iran views Iraq as an economic ally for hard currency, while it leverages strong ties with Shi’ite militants and political factions in the Arab country.

The US has long been seeking to restrict Tehran’s ability to bypass sanctions through its Arab neighbor’s financial system.

While the West has lauded Iraqi Prime Minister Mohammed Shia al-Sudani’s economic initiatives, the escalating financial strain could challenge Baghdad’s ability to balance Washington’s expectations with its economic connections to Tehran.