Iraq shows how the U.S. can squeeze Iran's trade partners

Iraq serves as a model for how the U.S. could enforce its threat to remove Iran's trading partners from the dollar-based financial system, with Washington already sanctioning Iraqi banks linked to Tehran. The U.S. holds effective control over Iraq's oil revenue dollars through the Federal Reserve Bank of New York, giving it unique leverage over Baghdad, which holds over $100 billion in U.S. reserves. Washington has halted cash shipments and threatened sanctions to pressure Iraq over Iran-backed militias. Iraq's trade with Iran topped $10 billion in 2025, driven by Iranian food and consumer goods exports, though it has fallen in 2026 due to war-related risks. Analysts note Iraq's vulnerability stems from its dependence on the U.S.-led financial architecture, while China and Turkey have more room to absorb pressure.