Economic experts warn of dire consequences as US eyes sanctions on Iraqi bank, 9 FEB

 Economic experts warn of dire consequences as US eyes sanctions on Iraqi bank

Shafaq News/ A call by US Republican Congressman Joe Wilson to impose sanctions on Iraq’s state-owned Rafidain Bank has sparked concerns among financial and banking experts over potential repercussions for the country’s banking sector.

Wilson claimed in a post on X on Jan. 30 that “under Biden and Brett McGurk, the US treasury allowed Rafidain Bank, the largest in Iraq, to become the money laundering machine for the Iranian regime and its puppets to obtain US$,” stressing that sanctions must be imposed on the bank, and that “Trump will fix it.”

Experts warn that such sanctions could lead to a shortage of US dollars in Iraq, push up exchange rates, and isolate the country from the global financial system. The worst-case scenario, they say, would be severe and comprehensive measures that could disrupt salary payments and development projects.

"If sanctions are imposed on Iraq’s banking system, the impact would be significant and far-reaching," said Nawar Al-Saadi, professor of international economics. "Iraq relies heavily on the US financial system for international transactions, including transfers and reserves held at the US Federal Reserve. Any restrictions could create a liquidity crisis, drive demand for dollars on the black market, and lead to a sharp depreciation of the Iraqi dinar."

Al-Saadi told Shafaq News Agency that sanctions targeting Rafidain Bank or other institutions handling foreign reserves would complicate financial transfers, affecting both foreign trade and remittances from Iraqis abroad. "This would harm the private sector, which depends on imports, forcing Iraqi businesses to seek costlier and less efficient alternatives, such as intermediaries or informal financial networks," he added.

Moreover, Al-Saadi highlighted potential political consequences because, according to him, the sanctions would strain US-Iraq relations and could push Baghdad to explore alternatives outside Washington’s influence, such as increased dealings with China or Russia. However, “shifting away from the Western financial system is neither easy nor swift, given Iraq’s deep economic ties with it," he said.

In a worst-case scenario, severe and comprehensive sanctions could trigger an economic crisis, making it difficult for the government to fund salaries and infrastructure projects, leading to higher unemployment and declining foreign investment, he warned. "This could escalate into broader security and political instability."

Al-Saadi suggested that partial or targeted sanctions could limit the impact but still send a message that Iraq must reassess its financial dealings, particularly regarding its ties with Iran. "Regardless of their scope, sanctions would compel Iraq to rethink its financial policies and consider reforms to reduce its dependence on US-controlled financial channels," he said.

Wilson has previously criticized the Biden administration for its handling of Iraq and Iran, arguing that Iraq continues to send $10 billion annually to Iran for oil and electricity purchases due to a US waiver. He called for the waiver’s revocation, asserting that Iraq should source energy from the Arab world instead.