In July, the Obama administration barred Iraq’s Elaf Islamic Bank from doing business with the U.S. banking system due to alleged ties to illegal financial transactions with Iran that threaten to undermine the effectiveness of Western sanctions against Tehran’s illicit nuclear program, according to The New York Times.
“The little-known bank singled out by the United States, the Elaf Islamic Bank, is only part of a network of financial institutions and oil-smuggling operations that, according to current and former American and Iraqi government officials and experts on the Iraqi banking sector, has provided Iran with a crucial flow of dollars at a time when sanctions are squeezing its economy,” The New York Times reported on Sunday.
Iraq and Iran have steadily increased economic ties since the U.S.-led invasion in 2003, with trade estimated at around $11 billion a year, according to The New York Times report. “Just last week, an Iraqi delegation that includes the deputy prime minister and top officials from the ministries of finance and trade and the central bank met in Tehran with their Iranian counterparts for talks about further increasing economic ties.”
Despite efforts by the Obama administration to curb the Elaf Islamic Bank’s financial dealings with Iran, Baghdad has not suspended the bank’s trade with the Iraqi central bank. According to the Times report:
Iraqi banking experts said last week that the bank was still allowed to participate in the Iraq Central Bank’s daily auction at which commercial banks can sell Iraqi dinars and buy United States dollars. These auctions are a crucial pathway for Iranian access to the international financial system. Western officials say that Iran seeks to bolster its reserves of dollars to stabilize its exchange rates and pay for imports.
Iraqi and American officials with knowledge of Iraqi banking practices say Iranian customers are able to move large amounts of cash through the auction, and from there into banks in regional financial centers like Dubai, United Arab Emirates, or Amman, Jordan, and then into the international banking system.
Iraq’s own recent renewed oil production has strengthened the country’s holdings of U.S. dollars. “Thanks to Iraq’s growing oil revenue, the Iraqi central bank has about $60 billion in foreign exchange reserves, held in accounts at the Federal Reserve Bank of New York, with which to meet the insatiable demand for dollars,” the Times reported.
Elsewhere, the Obama administration is exploring options for strengthening the impact of recent sanctions against Iran, including potentially tapping the Strategic Petroleum Reserve to keep oil prices low. According to Reuters, “As [oil] prices rise again, U.S. officials were now collecting information from the market about potential needs and studying futures, production numbers and data on Iranian oil exports.”
“The driving force in this is both impact on the economy and impact on the Iran sanctions policy," a source told Reuters. According to the same report, the source noted “Washington did not want rising oil prices to create a windfall for Iran while international sanctions were having an effective impact on its crude exports and revenues.”
Last week, President Barack Obama signed into law new sanctions that are intended to make it tougher to do businesses with Iran. According to The Wall Street Journal, the new law “closes loopholes in existing sanctions law on Iran, and adds penalties for those aiding Iran’s petroleum, petrochemical, insurance, shipping and financial sectors. It also broadens the list of available programs under which sanctions can be imposed on Iranian individuals and entities.”