Iraqi PM walks diplomatic tightrope in crackdown on dollars smuggled to Iran

Under pressure from Washington to stem the flow of dollars into Iran, Iraq’s prime minister sent elite counter-terrorism forces more accustomed to battling Islamist militants to shut down dealers smuggling the currency to the Islamic Republic.

Saturday’s raids in Baghdad represent an early test for Prime Minister Mohammed al-Sudani, who took office in October after more than a year of political paralysis and must now tread a delicate diplomatic path.

The New York Federal Reserve introduced tighter controls on international dollar transactions by commercial Iraqi banks in November.

The move was designed to stop the illegal siphoning of dollars to Iran and apply more pressure along with U.S sanctions imposed over Tehran’s nuclear programme and other disputes, leaving Tehran struggling to source dollars.

Aqeel al-Fatlawi, a Shi’ite lawmaker, accused Washington of deliberately using the new regulations as a political weapon.

“Americans are using the dollar transfer rigid restrictions as warning messages to Prime Minister Sudani to stay tuned with the American interests. ‘Working against us could lead to bringing down your government’ — this is the American message.”

A senior banking official said the United States sent a clear message to Iraqi officials: comply with the new regulations or the Iraqi central bank will face fines.

Sudani is reliant on Washington’s continued goodwill to ensure his country’s oil revenues and finances do not face US censure, and also needs Washington’s help in battling Islamic State militants.

But he came to power with the support of powerful, Tehran-backed militias and so cannot afford to alienate Iran.

“Iraqi Prime Minister Sudani is facing an interlocking challenge on how to work a balanced politics with the two old adversaries - Washington and Tehran, who are friends of Iraq at the same time without taking sides. It’s too tough a job to handle and Sudani is walking on a tightrope,” said Baghdad-based political analyst Ahmed Younis.

The Islamic Republic needs dollars to stabilize its deteriorating economy, hit hard by US sanctions imposed since 2018 after then-US President Donald Trump ditched Tehran’s nuclear deal with six world powers.

Iran’s troubled currency has lost around 30% of its value since nationwide protests following the death in police custody of a 22-year-old Kurdish Iranian woman, Mahsa Amini, on Sept. 16 that have further isolated the country.

For years, the clerical establishment has used front companies from Iraq to Turkey to obtain the dollars it needs for international transactions and for funding its proxies across the Middle East.

Two advisers to Iraqi private banks who regularly attend meetings with the central bank, speaking on condition of anonymity, said Iran receives about $100 million a month from Iraqi traders.

Iraqi security officials supervised by the prime minister said they had “stark evidence” that smugglers have been buying large amounts of dollars from Baghdad’s currency markets and smuggling it through border crossings to Iran, especially since mid-January.

Dozens of smugglers buy dollars from Baghdad’s currency markets and use school backpacks to transport it before packing it into four-wheel drive vehicles to the border, under the protection of armed guards, said an Iraqi border police colonel based at the Shalamcheh crossing near the southern city of Basra.—Reuters