US Backs Iraqi PM Pick Tied to 1 Sanctioned Bank

An Iraqi tycoon has emerged as the likely next prime minister with President Trump’s backing, a move complicated by the fact that the U.S. Treasury previously banned his bank from dollar transactions over suspected ties to Iranian-backed militias.

"The reality is that the militia groups have pretty deeply entrenched themselves into the Iraqi state and the economic system," said Victoria Taylor, a former State Department official now at the Atlantic Council. "Regardless of who the prime minister is, it will be a challenging and quite lengthy process to begin to chip away at those groups."

The White House endorsement of Ali Al Zaidi has come with a demand that he exclude these same militias from Iraq’s next government. The U.S. says the groups carried out 600 attacks on American facilities since the U.S.-Israeli war with Iran began. The situation has pushed oil prices higher on fears of regional instability, while the Iraqi dinar has faced pressure.

For investors, the appointment injects significant uncertainty into the world’s fourth-largest oil producer. A successful government formation that curbs militia influence could stabilize Iraq and its energy exports, potentially easing global oil prices. However, any misstep could provoke a violent response, threatening oil production and creating a risk-off scenario that would send capital fleeing from regional assets.

A High-Stakes Balancing Act

A political unknown, Ali Al Zaidi was a compromise choice after former prime minister Nouri al-Maliki, known for his close ties to Iran, was put forward in January. Before his nomination was announced, both the U.S. and Iran were consulted, with Al Zaidi taking calls from both President Trump and Iranian President Masoud Pezeshkian.

The balancing act became immediately apparent. Gen. Esmail Qaani, a top commander in Iran’s Revolutionary Guard, visited Baghdad on Sunday, urging Iraqi officials not to disarm the militia groups. This puts Al Zaidi in a difficult position, caught between a key U.S. demand and pressure from a powerful neighbor. The U.S. has suspended the transfer of Iraq's oil-sale revenue in dollars during the recent conflict, a powerful lever it could use to enforce its position.

Treasury's 2024 Ban

The core of the controversy lies with Al Janoob Islamic Bank, which Al Zaidi founded. In 2024, the U.S. Treasury barred the bank from the dollar system based on intelligence that it had connections to Shibl Al Zaidi, a militia leader sanctioned by the U.S. in 2018 for his alleged links to Iran’s Revolutionary Guard and Hezbollah. Ali Al Zaidi and Shibl Al Zaidi are from the same tribe but are not related by marriage.

The bank was also suspected of having ties to Kataib Hezbollah, a militia designated as a terrorist group by the U.S. Al Janoob’s chairman, Mazen Ahmed, stated the allegations are "false and based on rumor and speculation." He noted that Ali Al Zaidi owns 9.90% of the bank but has had no direct role in its operations since 2019.

The ban, which remains in effect, was part of a broader U.S. effort to stop militias from using the Iraqi banking system to acquire U.S. dollars. The action disrupted Iraq's food-basket program, which relied on the bank for international commodity purchases, forcing a workaround using euros to continue buying American rice.

This article is for informational purposes only and does not constitute investment advice.