US President Donald Trump was outraged by the Iraqi parliament's vote on Jan 5 to oust foreign forces, including nearly 5,200 US troops who helped Iraqi soldiers beat back the Islamic State terror group since 2014.
If troops were asked to leave, Trump threatened: "We will charge them sanctions like they've never seen before."
The US then delivered an extraordinary verbal message directly to Iraqi Prime Minister Adel Abdel Mahdi's office, two Iraqi officials said.
"The prime minister's office got a call threatening that if US troops are kicked out, 'we'-the US-will block your account at the Federal Reserve Bank in New York," one official said.
The parliament's vote to oust the troops was triggered by outrage over a US drone strike on Baghdad two days earlier that killed Iranian general Qasem Soleimani and his Iraqi right-hand man, Abu Mahdi al-Muhandis.
The Central Bank of Iraq's account at the Fed was established in 2003 following the US-led invasion that toppled Saddam Hussein.
Under a United Nations resolution that lifted the crippling global sanctions and oil embargo imposed on Iraq after Saddam's invasion of Kuwait, all revenues from Iraqi oil sales are now deposited in the account.
Iraq is OPEC's second-biggest crude producer, In 2019, the state reaped $112 billion from oil revenues.
Revenues are deposited in dollars into the Fed account daily, with the balance now sitting at about $35 billion, Iraqi officials said.
Every month or so, Iraq gets $1 billion to $2 billion in cash from that account for official and commercial transactions.
"Cutting off access means totally turning off the tap," an Iraqi official said.
Another official said cutting off access to the account would mean the government could not carry out daily functions or pay salaries and the Iraqi currency would plummet in value. "It would mean collapse for Iraq," the official said.
A third senior Iraqi official confirmed the US was considering "restricting" cash access to "about a third of what they would usually send".
The Fed declined to comment on Trump's threat.
A US State Department official confirmed that the possibility of restricting access to the Fed account was "raised" with Iraq following the vote.
"You can imagine why, if troops were expelled, banks might be nervous about sending lots of ... cash to Baghdad," this official said.