US Tightens Grip: Iran-Linked Iraq Development Bank Hit with New Sanctions

The United States has imposed sanctions on the Iraq Development Bank (IDB), along with dozens of other targets, due to its connections with Iran, the Treasury Department announced on Thursday. This action is part of Washington's "Economic Outcast" program, which has now sanctioned 10 entities and 16 individuals. The Trump administration has previously warned that any country or company continuing to engage in business with Iran would face severe repercussions. A Treasury statement detailed, "Working with partners across the US government, the European Union, the United Kingdom, Gulf partners, and others, Treasury is targeting any source of the regime’s illicit revenue, as well as its sanctions evasion schemes to move funds." This development follows a recent meeting between Saudi Crown Prince and Iraqi Prime Minister in Riyadh after a deadly Houthi airport attack. The Treasury has previously sanctioned banks in Turkey and a Bank Melli branch in the UAE. Last month, the UAE Central Bank prohibited Bank Melli Iran from conducting transactions between its UAE branches and Iran following an investigation. The US administration's "Economic Outcast" initiative aims to cut off Iran's remaining economic lifelines and compel the regime to reopen the Strait of Hormuz. Treasury Secretary Scott Bessent stated, "The noose is tightening around Iran’s economy, and not even Iran’s so-called allies can save it." In 2024, Iraq had already banned the IDB and seven other local commercial banks from engaging in US dollar transactions. The Treasury Department indicated that the IDB has exploited the now-dissolved dollar wire auction and continues to maintain ties with Iranian government entities and militia groups operating in Iraq. The IDB is among numerous Iraqi banks that have been restricted for years due to concerns regarding sanctions evasion, money laundering, and illicit finance. The US wields considerable influence over Baghdad's financial policies, partly because Iraq's international oil revenue is held at the Federal Reserve Bank of New York. The recent sanctions against the IDB coincide with efforts by Iraqi Prime Minister Ali Al Zaidi to collaborate with US authorities on reforming the country's banking sector, which has long been plagued by corruption. In July, the Treasury's Office of Terrorism and Financial Intelligence outlined a multi-year plan to eventually reintegrate restricted Iraqi banks into the US dollar system. This plan involves an initial phase of reforms by the Central Bank of Iraq, followed by a second phase where restricted banks complete the full reform and licensing process. This includes undergoing a third-party audit of their compliance functions, securing a qualified investor, and meeting international standards. At that time, the department noted that "no banned banks have regained access to foreign currency transactions." The statement concluded, "The United States will not tolerate the abuse of Iraqi banks by Iran-aligned militia groups and will take independent action, if necessary, to target such activity." This action occurred concurrently with Prime Minister Al Zaidi's visit to the US, where he committed to disarming militia groups in Iraq by September 30. He later adjusted this timeline to June 2027 in an interview with The New York Times in September. The disarmament of these groups is considered a critical component of managing Iraq's relationships with both the US and Iran.