Iraqi Corruption Is Fueling Iranian Sanctions Evasion

Iran-backed militias work through politicians, front companies, and oil smugglers to siphon billions of dollars from the Iraqi people each year in schemes to enrich both themselves and the Islamic Republic of Iran.

On May 7, the U.S. Treasury Department moved once again to push back against that threat, sanctioning several individuals and businesses accused of corruption connected to the regime in Tehran. Reportedly, oil smuggling nets $1 billion per year for the regime and its proxies. The targets include Iraq’s Deputy Minister of Oil Ali Maarij al-Bahadly; senior leaders of the U.S.-designated Foreign Terrorist Organizations Kata’ib Sayyid Al-Shuhada and Asa’ib Ahl Al-Haq (AAH); and several related companies.

Treasury’s action highlights AAH’s role in Iranian sanctions evasion, specifically oil smuggling. The sanctions therefore appear designed, at least in part, to warn Prime Minister-designate Ali al-Zaidi against elevating pro-Iranian, terrorist-linked politicians in the cabinet he is now forming. Zaidi’s backers include AAH-affiliated politicians.

Top Iraqi Officials Implicated in Oil Smuggling Schemes

The smuggling operations of Iran’s proxy militias rely on corrupt Iraqi officials like Maarij, whom Treasury says “abuses his position to facilitate the diversion of oil.” As the U.S. State Department notes, Iraq faces “endemic public corruption,” with persistent reports of bribery and kickbacks, particularly in the electricity, oil, and gas sectors, and often involving companies tied to political leaders. Maarij and other officials across the government provide Iran and militia-linked actors with preferential access to Iraqi oil that can then be sold or blended with Iranian oil and marketed as Iraqi in circumvention of sanctions on Iranian oil. Corrupt and pro-Iranian officials in Iraq further support this illicit trade by providing falsified paperwork that obscures the oil’s Iranian origin.

Treasury indicated Maarij provided such services for Salim Ahmed Said, an Iraqi oil smuggler designated in July 2025 for smuggling on behalf of Iran. Said “reportedly paid millions of dollars in kickbacks to these [Iraqi] officials in exchange for forged vouchers,” explained Treasury at the time.

U.S. Seeks To Limit Pro-Iran Factions in New Iraqi Government

The sanctions against Maarij follow Washington’s suspension in April of roughly $500 million in physical dollar shipments to Baghdad, and other measures aimed at isolating Iraq’s Iranian-backed militias. Since the launch of Operation Epic Fury, the militias have launched  hundreds of attacks against U.S. targets, including the U.S. embassy in Baghdad, and across the Gulf.

Zaidi is unlikely to risk further provoking Washington by including sanctioned individuals linked to Iran in the cabinet, which will reportedly not retain any current ministers. However, deputy ministers — like Maarij — could be elevated, even though deputy minister and director general-level officials have played crucial roles in enabling illicit activity for Iran while maintaining a lower public profile. Initial reports indicate that Iraq’s next oil minister will be selected from a party in the Coordination Framework, the Iran-aligned coalition of Shiite parties that nominated Zaidi.

Sanctions, Anti-Corruption Tools Can Combat Militia Influence

Treasury should continue targeting Iranian-linked militias, their commercial infrastructure, and the corrupt political networks that enable them. One option would be sanctioning the Popular Mobilization Forces (PMF), the Iraqi state organization that includes 6 U.S.-designated FTOs and other Iran-backed militias. Designating the PMF could expose Iraqi state institutions to U.S. sanctions given Baghdad’s role in funding the PMF.  Still, it may be necessary to ensure the government ceases providing direct or indirect support to sanctioned Iranian-linked militias. Treasury could also impose Global Magnitsky sanctions on corrupt Iraqi politicians whose conduct provides direct or indirect benefit to Iran.

Beyond sanctions, the Foreign Extortion Prevention Act (FEPA) offers another novel tool for holding corrupt officials accountable by criminalizing a politician’s solicitation of bribes from U.S. parties. Targeted FEPA enforcement against pro-Iranian politicians, ideally involving their extradition to the United States, would both weaken Iran’s influence networks in Iraq and help create a fairer environment for U.S. firms competing in the Iraqi market.

Max Meizlish is a research fellow for the Center on Economic and Financial Power (CEFP) at the Foundation for Defense of Democracies (FDD). Bridget Toomey is a research analyst in FDD’s Iran Program. For more analysis from Max and Bridget, please subscribe HERE. Follow FDD on X @FDD, @FDD_CEFP, and @FDD_Iran. Follow Max and Bridget on X @maxmeizlish and @BridgetKToomey. FDD is a Washington, DC-based, nonpartisan research institute focusing on national security and foreign policy.