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The US is holding hostage some $50bn (£25bn) of Iraq's money in the Federal Reserve Bank of New York to pressure the Iraqi government into signing an agreement seen by many Iraqis as prolonging the US occupation indefinitely, according to information leaked to The Independent.
US negotiators are using the existence of $20bn in outstanding court judgments against Iraq in the US, to pressure their Iraqi counterparts into accepting the terms of the military deal, details of which were reported for the first time in this newspaper yesterday.
Iraq's foreign reserves are currently protected by a presidential order giving them immunity from judicial attachment but the US side in the talks has suggested that if the UN mandate, under which the money is held, lapses and is not replaced by the new agreement, then Iraq's funds would lose this immunity. The cost to Iraq of this happening would be the immediate loss of $20bn. The US is able to threaten Iraq with the loss of 40 per cent of its foreign exchange reserves because Iraq's independence is still limited by the legacy of UN sanctions and restrictions imposed on Iraq since Saddam Hussein invaded Kuwait in the 1990s. This means that Iraq is still considered a threat to international security and stability under Chapter Seven of the UN charter. The US negotiators say the price of Iraq escaping Chapter Seven is to sign up to a new "strategic alliance" with the United States.