US Sanctions on Iraqi Banks: The Reasons and Implications on the Iraqi Economy

US Sanctions on Iraqi Banks: The Reasons and Implications on the Iraqi Economy

Banks constitute the main weight in the financial institution’s sector and are classified as intermediaries. Their work is based on deposits, and their profits are based on the interest rate difference between lending and depositing. Banks participate in the financial system in addition to the primary and secondary securities markets. After the political change in 2003, the liberalization of the banking system led to the application of market economy mechanisms, which included liberalizing banking activities, expanding bank licenses, increasing their numbers, and allowing foreign banks to open branches for them in the country, as well as expanding the opening of many channels for financial transfer abroad, which contributed to the smuggling of the dollar through the exploitation of currency sale auctions organized by the Central Bank, and dollar diversion operations have developed significantly over the past decade to neighboring countries, especially to Iran. Since these operations are known to the United States of America and constitute a violation of the imposed sanctions On Iran, the US Treasury Department imposed sanctions on 14 Iraqi banks that carry out financial transfers to Iran. The investigation of the roots of this problem lies in the fact that these banks resell the dollar that they buy from the central bank at the official price at the market price, which significantly exceeds the official price, or smuggle it abroad through fraudulent import operations that take place through financial transfers that do not correspond to its value, which led to a permanent depletion of the dollar in Iraq—y in the country. The repercussions of these sanctions on these fourteen banks lie in preventing them from dealing in dollars and excluding them from the auction for selling the currency. It is worth noting that the banks deprived of dealing in US dollars will enjoy their complete freedom in dealing in Iraqi dinars, which prompts them to move towards carrying out their essential work, which is to increase credit operations that are based on providing loans to the private sector and the government sector. As for the repercussions of the US sanctions by stopping the activity of some banks on the Iraqi economy, the Central Bank of Iraq stated in a statement that the impact of the US sanctions on the Iraqi economy decreased, given that the total assets owned by the fourteen banks constitute only 1.29% of the total banking assets in Iraq, in addition to that, the banks that are prohibited from transfers do not constitute their requests for only 8% of the total external transfers. As for the rise that occurred in the exchange rates of the dollar against the dinar, this is because some dealers (merchants) with those excluded banks went to the parallel market and withdrew large amounts of dollars to finance their commercial operations or to smuggle them abroad, but the Central Bank of Iraq deliberately imposed stricter controls on financial transfers in the country in general and works at the same time to ensure the integrity and accuracy of transfer transactions. According to the latest data, it is noted that government banks that did not exceed seven banks have contributed 81.2% of the total credit granted to the central government, public institutions, and the private sector, compared to 18.2% contributed by private banks operating in Iraq. Therefore the impact of excluding these banks from dealing in dollars on the Iraqi economy will be minimal.

Dr. Irahem Jassim Alyaseri