The United States has issued a stern warning to Iraq, threatening sanctions over the alleged smuggling of Iranian crude oil through Iraqi channels and the presence of Iran-linked armed groups operating within the country. Iraqi media reports say Washington may freeze hundreds of millions in oil revenues and impose penalties on Iraq’s national oil company if action isn’t taken.

As reported by Kurdistan24, U.S. officials told the Iraqi government that around $350 million in oil income could be blocked if individuals involved in the smuggling are not held responsible. The warning, delivered on July 3, also named several sanctioned companies and oil tankers suspected of moving Iranian oil through Iraq.

In a broader crackdown, the U.S. Treasury recently sanctioned 22 businesses based in Turkey, the UAE, and Hong Kong for helping facilitate oil sales that benefit Iran’s Islamic Revolutionary Guard Corps-Quds Force (IRGC-QF).

The issue has raised alarm within Iraq’s parliament. Lawmaker Sabah Subhi called for the oil minister to appear before lawmakers, saying the illegal trade threatens the country’s financial stability. “With 95% of Iraq’s revenue tied to oil, this situation is very serious,” he said.

The U.S. also continues to voice concern about pro-Iranian militias operating under Iraq’s Popular Mobilization Forces (PMF). A U.S. State Department official told Shafaq News that some PMF factions, such as Kataib Hezbollah and Asaib Ahl al-Haq, are connected to designated terrorist groups and remain a threat to regional peace.

In response to the growing pressure, Iraqi Prime Minister Mohammed Shia al-Sudani held talks with U.S. diplomat Steven Fagin in Baghdad. The meeting reportedly focused on controlling militia influence and ensuring stability amid tensions over Iraq’s ties to both Washington and Tehran.