Drone attacks on US-run oilfields in Iraqi Kurdistan – blamed by local authorities on Iran-aligned militia – prompted a US pressure campaign that helped restart the Kirkuk–Ceyhan export pipeline, a move Washington views as curbing funding for Iran-backed groups, Reuters reported.
The July strikes – described by Reuters as retaliation for US action against Iranian nuclear sites weeks earlier – hit the Sarsang field operated by HKN Energy and another run by Dallas-based Hunt Oil, disrupting output across the region.
By the end of four days of attacks, nearly half of Kurdistan’s production was offline, Reuters said.
In the following weeks, US officials delivered what one administration source called “extremely intensive” messages to Baghdad, pressing for a restart of the pipeline to Türkiye’s Ceyhan port.
Washington has argued that the line’s closure diverted crude into southern routes and informal channels that enriched Iran-aligned networks.
A preliminary restart deal was reached in mid-July, and exports resumed late in September after a 30-month halt, helping normalize flows of Kurdish crude.
Iraqi officials have not named the group behind the strikes, and no group has claimed responsibility for the attack, but Iraqi Kurdistan security sources said that initial investigations suggested that the drone came from areas under the control of Iran-backed militias.
“The moment we print money without backing, inflation rises and people pay the price,” President Masoud Pezeshkian said during a visit to the southwestern city of Yasuj.
Monetary expansion driven by unfunded pledges, he said, “takes money from people’s pockets” and intensifies existing pressures.
Economists widely link Iran’s continued inflation and the collapse of the rial to persistent reliance on money creation.
The government’s use of bank borrowing and indirect central bank financing expands the monetary base without matching growth in real output, entrenching price instability.
Iran’s rial continued to weaken on Wednesday in a sign of flagging confidence in the country's troubled economy, with the US dollar trading at an all-time high above 1.2 million rials according to local exchange-rate websites.
Rapid liquidity growth
Iran's broad money doubled during the 2.5-year presidency of Ebrahim Raisi, according to statistics from the country’s Central Bank (CBI).
Broad money, the total money supply within an economy, is the primary cause of rampant inflation in Iran.
Over the past years, Iran’s Central Bank has ceased publishing government budget reports.
Local media tracking shows that in the past year, food prices in Iran have risen by an average of more than 66%.
According to the Supreme Audit Court of Iran, however, it is estimated that since 2018 – when the US withdrew from the Joint Comprehensive Plan of Action (JCPOA) and imposed sanctions on Iran’s oil exports – the government's annual budget deficit has consistently exceeded 30%.
The Iranian government has been compensating the budget deficit by borrowing money, in particular, from the banking system.
Budget capped
Pezeshkian said his administration set an unprecedented ceiling on expenditure. “For the first time, we have kept budget growth to around two percent and cut the rest,” he said.
Some recipients, he added, had protested reduced allocations but argued that expanding spending without resources would heighten inflation rather than solve shortages.
He added that the government could not “spend from people’s pockets” for short-term gains and warned that raising expectations without funding would deepen internal disputes.
“If we think the situation is fine, that the government has money and is not giving it, or if we only raise our own expectations, we will increase disagreements and conflicts.”
The Justice Ministry’s gazette carried a committee decision freezing funds of designated entities and, in error, named Hezbollah and the Houthis, according to Reuters.
A letter from the acting deputy governor of the Central Bank asked the Committee for the Freezing of Terrorists’ Funds to delete the clause, two bank sources was cited by the outlet.
Tasnim, an outlet close to Iran’s IRGC, framed Baghdad’s correction as a climbdown under intense public and political pressure, saying Iraq’s Central Bank “backed off” after outrage over the Gazette notice.
Prime Minister Mohammed Shia’ al-Sudani said Iraq had approved freezing only the assets of entities and individuals linked to Islamic State and al Qaeda, in line with UN Security Council Resolution 1373 and following a request from Malaysia.
He ordered an urgent investigation “to hold accountable those responsible” for the mistake and stressed Baghdad’s stance on Lebanon and the Palestinians was “principled and not subject to exaggeration.”
The clarification followed publication in issue No. 4848 of the Iraqi Gazette of Decision No. 61 by the Committee for the Freezing of Terrorists’ Assets, which named 24 entities and ordered their funds frozen.
The committee is chaired by Central Bank Governor Ali Mohsen al-Alaq, with members from the anti-money-laundering office and the ministries of finance, interior, foreign affairs, justice, trade, communications, and science and technology, as well as the integrity, intelligence and counter-terrorism bodies.
The committee said on Thursday that the publication was meant to cover ISIS- and al-Qaeda-related listings only and that unrelated groups appeared because the list was released before final revisions were completed. It said a corrected version will be printed in the official gazette.
Publication of the committee’s decision in the Justice Ministry’s gazette led some outlets to report that Hezbollah and the Houthis had been designated terrorist entities, prompting denunciations from politicians aligned with Iran-backed factions.
Hussain Mouanes, a lawmaker from a bloc affiliated with Kataeb Hezbollah, called the government’s conduct “irresponsible” and accused it of failing to defend Iraq’s sovereignty.
Lawmaker Mustafa Sanad, who shared the gazette and is aligned with Popular Mobilization Forces-linked blocs, condemned the designations on social media.
Iraq has balanced relations with both the United States and Iran, but faces mounting risks to its financial system if it falls foul of global sanctions regimes.
Hezbollah and the Houthis are key members of a broader network of Iran-backed groups across the region.
Iran views Iraq as a strategic economic and political partner amid Western sanctions, while Baghdad remains wary of being drawn into US efforts to squeeze Tehran and its regional allies.
