Dr. Saman Shali

A shift in leadership within the United States often leads to major changes in foreign policy, especially regarding the Middle East. With a new US administration in 2025, there is growing speculation about the possibility of renewing sanctions or an economic embargo on Iraq. Given Iraq's strategic importance and complex relationships with the United States and regional powers, any policy shifts could have far-reaching consequences. The US sanctions on Iraq are expected to be renewed, taking into account economic, political, and geopolitical factors.

As of February 2025, the United States maintains a nuanced approach to Iraq, balancing sanctions with strategic waivers to support Iraq's energy needs and economic stability. The US Treasury has implemented measures to protect the Iraqi financial system from misuse by terrorist financiers and money launderers. For example, in January 2024, the Treasury Department designated Al-Huda Bank as a significant money laundering source for serving as a conduit for terrorist financing by Iran. This action aims to protect the US and Iraqi financial systems from illicit activities.

The relationship between the United States and Iraq has been shaped by decades of political, economic, and military engagement. The United States has imposed various sanctions and financial restrictions on Iraq, primarily targeting corruption, terrorist financing, and economic dependence on Iran. With the arrival of a new US administration, there is speculation about the future direction of these policies. Will the embargo be tightened, eased, or restructured to suit a new geopolitical strategy? This article explores the prospects and potential implications of US policies toward Iraq under the current administration.

Historical Context of the US Blockade of Iraq

The United States has imposed economic sanctions and financial restrictions on Iraq for various reasons over the years. While the most stringent sanctions were lifted after the fall of Saddam Hussein in 2003, Iraq still faces restrictions, particularly concerning financial transactions and trade with Iran. The US Treasury has taken action against Iraqi banks accused of facilitating money laundering and terrorist financing while also granting waivers allowing Iraq to continue purchasing electricity from Iran. Iraq remains in a delicate position, balancing its relations with the United States and its regional allies, including Iran. The new US administration's position on Iraq is likely to be influenced by several factors, including concerns about Iraq's economic stability, military cooperation, and its alliance with US adversaries (Iran, China, and Russia). If the US sees Iraq moving further into Iran's sphere of influence, it could consider taking more stringent economic measures, including sanctions or embargoes.

Expectations under the new US administration

The new US administration is expected to pursue a policy that balances sanctions and economic support. However, there are concerns that the Trump administration will adopt a "shock" policy, which relies on making sudden decisions without prior preparation, which may affect Iraq's political, economic, and security files. The following main expectations define this approach:

1. Continuation of targeted sanctions

• The United States is likely to continue imposing sanctions on individuals (influential figures) and Iraqi financial institutions linked to corruption, financing terrorism, and Iranian influence.

• Measures such as designating Al-Huda Bank as a money laundering concern may continue, indicating a firm stance against financial misconduct in Iraqi banks.

2. Renewal of sanctions exemptions for energy trade

• The United States is expected to continue granting Iraq exemptions that allow it to import electricity and gas from Iran and to emphasize reducing them to the lowest levels in 2025.

• These exemptions recognize Iraq's dependence on energy and the risk of economic destabilization if it is suddenly cut off.

3. Supporting Economic and Financial Reforms

• The United States could push Iraq to strengthen its banking system, combat corruption, and develop alternative energy sources to reduce its dependence on Iran.

• Technical and financial assistance programs could be implemented to support economic development and diversification in Iraq.

This strategy aims to strengthen Iraq's financial system, reduce corruption, and promote economic development while ensuring that sanctions do not inadvertently harm the Iraqi people or impede the country's ability to access essential resources.

• Energy policy conflicts – Iraq's role as a significant oil producer means that any deviation from U.S.-backed energy policies, such as selling oil in currencies other than the dollar, could lead to economic retaliation.

4. Security Cooperation and Military Presence

• While economic sanctions and waivers are a key focus, the United States could also maintain a military presence in Iraq to counter threats from Iranian-backed terrorist groups and militias.

• Ending the presence of Iranian-backed terrorist groups and militias, incorporating the Popular Mobilization Forces into the Iraqi army, and restricting weapons to the state.

• This security dimension could affect how the United States applies financial restrictions, as instability could lead to more economic pressure on Iraq.

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Despite these expectations, several challenges may arise:

• Iraqi popular reaction: US sanctions and financial restrictions may be unpopular in Iraq, where many view them as foreign interference in internal affairs.

• Iranian influence: Close economic and political ties between Iraq and Iran make it difficult to fully align with US policies, creating tensions between the two countries.

• Regional instability: Any escalation in tensions between the US and Iran could impact Iraq, potentially leading to tougher sanctions.

• Diversify economic partners: Strengthen economic ties with China, Russia, and European countries to reduce dependence on the US

• Regional alliances: Strengthen cooperation with Gulf countries to ensure financial and energy stability.

Iraq's Sovereignty in 2025

Despite many challenges, such as reducing dependence on oil, ensuring political stability amid sectarian divisions, and managing environmental crises, the Federal government must focus on protecting state sovereignty. A strict Trump administration may view Iraq as part of Iran's sphere of influence, and Iran will try to cut its losses in Syria and Lebanon by strengthening its position in Iraq. However, Baghdad knows that it and Tehran are "neighbors forever," so it must push for relations based on mutual respect and mutual benefit.

Conclusion

A full US embargo on Iraq in 2025 remains uncertain. However, the possibility of increased sanctions or economic restrictions is plausible, depending on Iraq's geopolitical position and policy choices. While targeted sanctions on corruption and terrorist financing will remain in place, Iraq is expected to receive economic waivers to meet its energy needs. US policy will also focus on supporting financial reforms to strengthen Iraq's economy and reduce its dependence on Iran. However, the success of these measures will largely depend on how Iraq handles its foreign relations, particularly with Iran and other global powers. Iraq must adopt a balanced approach to avoid dire consequences by engaging in diplomatic efforts while strengthening its economic resilience. The coming years will be critical in shaping the future course of US-Iraq relations. In addition, diplomatic efforts will be intensified to prevent Iraq from falling into the cycle of international conflicts.

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Saman Shali has a Ph.D. in Science (1981) from the University of Sussex. Dr. Shali worked as an Assistant Researcher and Assistant Professor at the University of Sussex, King Saud University, and Pennsylvania State University. He is also a senior fellow at the Mediterranean Institute for Regional Studies.