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Report: Iraq could lose access to NY Fed account if US troops removed

The U.S. State Department warned that it could prohibit access to Iraq's central bank account at the Federal Reserve Bank of New York, where it keeps international oil sale revenues, should it kick American troops out of Iraq, The Wall Street Journal reported, citing Iraqi officials.

The warning, given to Iraqi Prime Minister Adel Abdul Mahdi during a Jan. 8 call, comes amid the killing of leading Iranian military commander Qassem Soleimani during a U.S. airstrike on Jan. 2.

The New York Fed can freeze accounts under U.S. sanctions law or if it suspects the funds could violate U.S. law. The Central Bank of Iraq's financial statement for the year ended 2018 shows that it had almost $3 billion in overnight deposits at the New York Fed, the report said.

The dinar's value could fall if Iraq's access to U.S. dollars is restricted, and this fall in turn could prompt the Iraqi community to hoard dollars in an effort to secure cash. This could further burden the country's economy, the report noted.

People familiar with the matter said the U.S. is concerned that the removal of American troops in Iraq could redirect U.S. dollars to Iranian accounts and other adversaries, the report said.

Spokesmen for Abdul Mahdi, the Iraqi central bank and Iraqi embassy in Washington did not respond to WSJ's requests for comment, while the U.S. State and Treasury Departments and the Federal Reserve Board declined to comment.