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Iraq fears an economic “collapse” if Trump decides to freeze his oil revenues

UNITED STATES (OBSERVATORY NEWS)

Iraqi officials express their fear of an economic “collapse” if Washington imposed sanctions that it had previously hinted at, including freezing bank accounts in the United States, in which Baghdad holds oil revenues that make up 90 percent of the state budget.

US President Donald Trump was angry after the Iraqi parliament voted on January 5 to remove foreign forces from the country, including about 5,200 American soldiers who have helped local forces defeat ISIS since 2014.

He threatened, saying that if the soldiers were asked to leave, “then we will impose sanctions on them that they have not seen before.”

Two Iraqi officials told AFP that the United States subsequently delivered an extraordinary indirect verbal message to the office of resigned Prime Minister Adel Abdul-Mahdi.

One of those officials said, “The Prime Minister’s Office has received a threatening call that if American forces are expelled, then we +, the United States, will close your account at the Federal Reserve Bank in New York.”

Parliament voted to end the presence of foreign forces in Iraq because of discontent over a US airstrike by a drone in Baghdad two days before the session that killed the influential Iranian general Qassem Soleimani and deputy chief of the PMF Abu Mahdi al-Muhandis.

The Iraqi Central Bank account was established in the Federal Reserve in 2003, in the wake of the US invasion that toppled the regime of former dictator Saddam Hussein.

Under Resolution 1483 of the United Nations Security Council, which lifted tougher international sanctions and the oil embargo imposed on Iraq after Saddam Hussein’s invasion of Kuwait, all proceeds from Iraqi oil sales go to that account.

Iraq is the second largest producer of crude oil in the Organization of Petroleum Exporting Countries (OPEC), and depends on more than 90 percent of the state’s $ 112 billion budget in 2019, on oil revenues.

To this day, revenue is paid in dollars into the Federal Reserve account daily, and the balance now stands at about $ 35 billion, Iraqi officials have confirmed to AFP.

And Iraq pays almost every month, between one billion and two billion dollars in cash from this account, for official and commercial transactions.

“We are an oil producing country, and these accounts are in dollars. Freezing them and preventing access to them means that the tap is completely closed,” says the first Iraqi official.

The second indicates that this will mean that the government will not be able to do daily business or pay salaries, and that the value of the Iraqi currency will fall.

He added, “This will mean the collapse of Iraq.”

Trump “politicizes everything” –

A senior Iraqi official confirms that the United States is considering “restricting” access to cash to “about a third of what they normally send.”

The Federal Reserve declined to comment on Trump’s threat. But a State Department official assured France Press that the possibility of restricting access to the Federal Reserve Account was “raised” with Iraq shortly after the vote.

“You can imagine why if the forces were expelled, the banks might be concerned about sending a lot of (…) money to Baghdad,” said the official.

But the American threat remains largely unusual, as the Federal Reserve is supposed to be independent of foreign policy.

“The attempt to politicize dollar shipments raises the bank’s concern because it affects its standing and integrity in dealing with customers,” he said, adding that “it is clear that Trump is ready to politicize everything.”

Washington has considered this measure months ago, as a senior American diplomat at the US embassy in Baghdad told France Press in July that the United States was considering “limiting the flow of money to Iraq.”

“This will be the nuclear option (knockout),” the diplomat added.

And before the Iraqi parliament voted, its president, Muhammad Al-Halbousi, warned that the world might stop dealing with Iraqi banks in response to this step.

The Federal Reserve account of the Iraqi Central Bank can be frozen by placing a government agency on the black list, which will immediately restrict Baghdad’s access to dollars.

The United States has already imposed sanctions on Iraqi citizens, armed factions, and even banks linked to Iran, Washington’s archenemy in the region.

But it did not come close to oil revenues. Former officials told France Press that a similar move would be extremely harmful to a country considered an ally of the United States.

– The United States may “lose Iraq” –

But relations have deteriorated recently, with Washington frustrated by Iraq’s alliance with Iran, and the repeated missile attacks on US interests that have blamed Washington’s Iraqi factions loyal to Tehran.

After that, relations witnessed a severe blow with the assassination of Soleimani and the engineer, which Iraq considered a violation of its sovereignty.

US and Iraqi officials point out that the United States is also studying other, less exciting options.

One of those options is for Washington to refuse to renew the temporary exemption it granted to Iraq in 2018, which allows Baghdad to import gas from Iran to feed the devastated electricity grid, despite US sanctions on the Iranian energy sector.

In the event that Washington does not renew the exemption in February, the Commercial Bank of Iraq, which buys gas, may face secondary sanctions for dealing with blacklisted Iranian entities.

Iraqi officials say that the American threat to deny access to oil revenues has been met with shock, anger and almost disbelief.

“The prime minister was angry and insulted,” said one of the officials.

Another considered that the United States would “lose Iraq”, adding: “They pushed us toward Russia, China and Iran. We must form a separate economy with these countries.”

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