Concerns Arise Over Potential Sanctions on Iraqi Banking Sector
The recent call by Joe Wilson, a deputy of the American Republican Party, for sanctions against the Iraqi government bank Rafidain has alarmed experts in financial and banking affairs, raising questions about the potential implications this move could have on Iraq’s banking landscape.
Experts contend that the imposition of such sanctions could precipitate a shortage of U.S. dollars in Iraq and isolate the nation from the global banking system, compromising the private sector’s operational viability.
Economic Implications of Sanctions
Nawar Al-Saadi, a professor of international economics, stated that sanctions targeting the Iraqi banking system would have widespread and profound effects. He emphasized that Iraq’s economic stability relies heavily on its interactions with the American financial system for international transactions, including transfers and reserves held at the Federal Reserve. Restrictions on these financial dealings could lead to diminished dollar liquidity, driving up demand for dollars on the black market, and increasing the exchange rate against the Iraqi dinar—an issue particularly critical given Iraq’s reliance on imports.
Al-Saadi elaborated that sanctions impacting key Iraqi banks, including Rafidain and others managing foreign reserves, would effectively sever Iraq from the global banking apparatus, complicating financial transactions tied to foreign trade and the remittances of Iraqis abroad. This scenario could dampen private sector growth, pushing local businesses to seek costlier and less efficient alternatives such as financial brokers or unconventional payment systems.
Political and Strategic Ramifications
In addition to economic ramifications, Al-Saadi highlighted the potential for increased political tension between Iraq and the United States if sanctions were enforced. This could prompt Iraq to explore alternative partnerships outside U.S. influence, potentially enhancing ties with China or Russia or migrating to alternative financial systems, akin to strategies employed by other sanctioned nations. However, he noted that such shifts would be complicated and time-consuming, given Iraq’s entrenched commercial connections with the West.
He warned that in the worst-case scenario—where sanctions are severe—the resultant economic crisis could impede the government’s ability to fund salaries and projects, leading to higher unemployment and a decline in foreign investment, which fundamentally relies on a stable financial framework. Consequently, Iraq would face significant challenges in managing any potential economic downturn while maintaining social stability, which could yield serious security and political repercussions.
Future Outlook and Policy Revisions
Al-Saadi concluded by positing that if sanctions were to be partial or selectively imposed, targeting specific banks rather than the entire system, the resultant impact might be limited. However, such actions would still send a clear message to Iraq about the necessity of prudence in managing its financial relations with Iran. Regardless of the sanctions’ breadth, they would force Iraq to reconsider its financial and banking strategies, potentially driving reforms to lessen dependency on conventional financial channels that invite U.S. scrutiny.
On January 30, 2025, Wilson reiterated his stance on the necessity for sanctions against the Rafidain Government Bank, accusing it of facilitating money laundering for the Iranian regime in exchange for U.S. dollars. He asserted on social media that the U.S. Treasury and Federal Reserve, under the Biden administration, had enabled the Mesopotamia Bank to become a vehicle for laundering funds for Iran. Wilson stressed the importance of sanctioning Rafidain Bank and expressed confidence that former President Donald Trump would resolve the issue.
He also criticized the Biden administration’s policies toward Iraq and Iran, highlighting that Iraq reportedly sends $10 billion annually to Iran for oil and electricity, a situation he believes underscores American policy that still enables Tehran’s influence over Baghdad. Wilson advocated for an end to these exemptions to allow Iraq to obtain energy more sustainably from the Arab world, concluding with the assertion that "Trump will fix this."
