Iran pushes local-currency trade with Iraq as US threatens ‘toughest’ sanctions

Iranian Parliament Speaker Mohammad Bagher Ghalibaf has urged businesses in Iran and Iraq to expand trade using their national currencies as Tehran searches for ways to blunt the impact of tightening American sanctions. His call came as the United States prepares what Treasury Secretary Scott Bessent has described as the toughest economic sanctions imposed on Iran, adding another dimension to the confrontation between Washington and Tehran.

Addressing Iranian and Iraqi business leaders in Baghdad, Ghalibaf argued that closer economic cooperation could help the two neighbouring countries withstand external pressure. He called for a coordinated plan to counter what Tehran describes as unjust sanctions and said bilateral transactions could increasingly be conducted in national currencies rather than relying on the US dollar. The proposal reflects Iran's wider effort to reduce its exposure to the dollar-dominated international financial system at a time when Washington is intensifying restrictions on its trade and financial networks.

Local currencies in focus

Ghalibaf said national currencies offered one route for maintaining commercial transactions despite restrictions on Iran's access to conventional international payment channels. The Iranian official sought greater cooperation between private businesses on both sides of the border, arguing that economic resilience and national security were closely connected.

Iran has long experimented with alternative settlement arrangements, barter and non-dollar transactions to maintain trade under sanctions. Greater use of local currencies can reduce dependence on dollar-clearing mechanisms that are vulnerable to US restrictions, although such arrangements cannot by themselves eliminate the wider difficulties created by sanctions on banks, companies and international counterparties.

Ghalibaf's remarks also reflected Tehran's attempt to frame economic pressure as part of a wider confrontation. He accused the United States and Israel of pursuing economic and psychological pressure after, in his assessment, failing to achieve their objectives through direct military confrontation. He argued that economic strength was essential to maintaining security and attracting investment.

Washington raises pressure

The appeal comes as the Trump administration prepares another major escalation of economic measures against Iran. Bessent has said Washington intends to impose its toughest sanctions yet, with the strategy aimed at further restricting Tehran's ability to generate and move funds internationally.

The US Treasury has continued targeting financial networks that it says help Iran move revenues through overseas banks, exchange houses and front companies. Washington's broader pressure campaign has also focused heavily on Iranian oil, a crucial source of foreign currency for Tehran.

The renewed sanctions push comes amid prolonged tensions between Iran and the United States and Israel. Restrictions on Iranian oil shipments have already placed additional strain on Tehran's economy and its access to foreign exchange. Washington is also seeking to discourage third countries and companies from maintaining economic links that could provide Iran with alternative sources of revenue.

Iraq remains crucial partner

Iraq occupies a particularly important position in Iran's regional economic strategy because of the two countries' extensive trade and geographical proximity. Tehran has strong commercial links with its western neighbour, making mechanisms that allow bilateral commerce to continue particularly valuable when access to international financial systems is constrained.

For Iran, encouraging Iraqi businesses to use local currencies is therefore about more than reducing the symbolic dominance of the dollar. It is an attempt to build trade channels that are less exposed to American financial pressure. The effectiveness of such arrangements, however, depends heavily on participating banks and businesses being willing to accept the regulatory and financial risks associated with dealing with Iran.

That challenge could become more significant if Washington expands the use of secondary sanctions against foreign entities maintaining commercial relations with Tehran. Such measures can force businesses to choose between access to the US financial system and continuing transactions with sanctioned Iranian entities.

Economic battle intensifies

Iran's economy is already under substantial pressure from sanctions, disruption to oil exports and currency weakness. Washington's latest measures are intended to tighten those constraints further by limiting Tehran's ability to earn foreign currency and access international financial networks.

Tehran, meanwhile, is attempting to respond by deepening regional trade, expanding alternative financial arrangements and reducing dependence on the dollar. Ghalibaf's proposal to Iranian and Iraqi businesses fits directly into that strategy.

The confrontation is consequently shifting increasingly into the economic sphere. Washington is betting that tighter restrictions on Iran's revenues and financial links will increase pressure on Tehran, while Iranian leaders are looking towards regional partners and alternative payment mechanisms to keep commerce moving. Whether local-currency trade can meaningfully soften the impact will depend not only on Iran and Iraq, but also on how aggressively the United States enforces its next round of sanctions.