Treasury Sanctions Iraqi Oil Official Over Iran Smuggling Claims

WASHINGTON - The Treasury Department sanctioned Iraq's deputy oil minister Thursday, alleging he helped divert Iraqi oil products through a network that U.S. officials say benefited Iran and Iran-aligned militias accused of threatening Americans in Iraq.

The Office of Foreign Assets Control designated Ali Maarij Al-Bahadly under Executive Order 13902, the Iran sanctions authority that targets key sectors of Iran's economy, including petroleum. OFAC also designated militia-linked figures and companies under counterterrorism authorities, according to Treasury's May 7 announcement.

Treasury Secretary Scott Bessent said the alleged scheme turned Iraqi resources into financing for Tehran and its proxies.

"Like a rogue gang, the Iranian regime is pillaging resources that rightfully belong to the Iraqi people," Bessent said in Treasury's statement. "Treasury will not stand idly by as Iran's military exploits Iraqi oil to fund terrorism against the United States and our partners."

Why It Matters To The United States

The State Department framed the sanctions as a U.S. security action, not only an Iraqi corruption case. In a May 7 statement, the department said the targeted networks "undermine Iraq's sovereignty, rob the Iraqi people of national resources, and fuel violence against both Iraqis and Americans."

Treasury said Iran-aligned militias in Iraq have conducted attacks against U.S. personnel and civilians, diplomatic facilities, and businesses across Iraq. The agency said the designations were meant to hold those groups and their support networks accountable while increasing pressure on Iran's ability to raise and move money.

The action also carries an oil-market warning. Treasury said any person or vessel that facilitates illicit trade in oil or other commodities through covert trade or financial channels risks U.S. sanctions exposure. That warning matters to shipping firms, banks, insurers, storage operators, and commodity buyers that touch Gulf oil flows.

How Treasury Says The Scheme Worked

Treasury alleged that Al-Bahadly used senior posts in Iraq's oil sector to help Salim Ahmed Said, Asa'ib Ahl Al-Haq, and Iran. According to Treasury, Al-Bahadly first held influence as head of the Iraqi parliament's oil and gas committee and later held roles inside Iraq's Ministry of Oil, including deputy minister and acting minister.

OFAC said it previously sanctioned Said in June 2025 for running companies that sold Iranian oil falsely declared as Iraqi oil. Treasury's June 2025 action said Said's companies used ship-to-ship transfers, blending, and forged documentation to sell Iranian oil into legitimate markets as Iraqi-origin oil.

Treasury said Thursday that Al-Bahadly authorized trucking several million dollars' worth of oil per day from the Qayarah oil field to VS Oil in Khor Zubayr for export. Treasury said VS Oil oversaw the mixing of Iranian oil with Iraqi oil before shipment, while Al-Bahadly was responsible for falsifying documents about the oil's provenance.

The State Department made a similar allegation, saying Iranian oil was fraudulently mixed with Iraqi oil and sold for Iran's benefit as part of a sanctions-evasion scheme.

Who Was Sanctioned

OFAC's May 7 sanctions update lists Al-Bahadly, born in 1966 in Maysan, Iraq, as an Iraq national linked to Said under the Iran-related sanctions authority. The listing names Baghdad and Alamara as locations associated with him.

OFAC also added Mustafa Hashim Lazim Al-Behadili, a figure Treasury described as a leader and economic official for Asa'ib Ahl Al-Haq. Treasury said Al-Behadili controlled oil-smuggling financing and oversaw mineral industry activities for the group in southern Iraq.

The May 7 OFAC update also added Mohammed Issa Kadhim Al Shuwaili and Ahmed Khudair Maksus. OFAC listed Al Shuwaili as linked to Ali Qasir and Maksus as linked to Kata'ib Sayyid Al-Shuhada. Treasury said the action targeted senior leaders of Kata'ib Sayyid Al-Shuhada and Asa'ib Ahl Al-Haq, both of which the United States has designated under terrorism authorities.

Several companies were added as well, including Gulf Energy for General Transport and Marine Services and Real Estate Consultancy LLC, Gulf Energy Oil Services Limited, Gulf General Contracting Limited, and Iraq International Energy for the Import and Sale for Petroleum Products Limited, according to OFAC's SDN update.

Economic Implications

The sanctions sharpen a core enforcement problem in the oil trade: buyers and financiers rely on origin documents, shipping records, port data, and counterparties to determine whether a cargo is lawful. Treasury's allegation is that the paperwork itself was part of the scheme.

If OFAC's account is accurate, the risk extends beyond one Iraqi official. A shipment that appears to be Iraqi oil could carry Iran sanctions exposure if traders, banks, insurers, or vessel operators ignore signs of blending, forged documents, or suspicious ship movements.

That creates a compliance burden for legitimate Iraqi oil flows. Iraq depends heavily on oil revenue, and U.S. officials said the alleged network robbed Iraqis of national resources. At the same time, tighter sanctions enforcement can raise costs for lawful buyers when they must add more screening, documentation checks, and counterparty reviews.

For U.S. policy, the tradeoff is direct. The administration is trying to reduce Iran's petroleum revenue while avoiding unnecessary disruption to legitimate oil supply. Treasury said its broader Iran campaign has already targeted oil revenue, shadow banking networks, and companies connected to China-linked independent refineries.

What People Are Saying

Bessent, the Treasury secretary, said the alleged network helped Iran's military turn Iraqi oil into funding for attacks. "Treasury will not stand idly by as Iran's military exploits Iraqi oil to fund terrorism against the United States and our partners," he said.

The State Department said the action was meant to defend Iraqi sovereignty and American personnel. "These networks undermine Iraq's sovereignty, rob the Iraqi people of national resources, and fuel violence against both Iraqis and Americans," the department said.

State also named Al-Bahadly as a central target. "Among those sanctioned is Ali Maarij al-Bahadly, Iraq's Deputy Minister of Oil, who has abused his government position to divert Iraqi oil in support of the Iranian regime and its terrorist proxies," the department said.

Treasury said the prior Said network shows the same alleged mechanism. In June 2025, Treasury said Said's companies and vessels blended Iranian oil with Iraqi oil, then sold it through Iraq or the United Arab Emirates "as purely Iraqi oil using forged documentation to avoid sanctions."

The Big Picture

The sanctions put Iraq's oil bureaucracy, Iran's revenue network, and U.S. counterterrorism policy in the same frame. Treasury is alleging that official access inside Iraq helped transform oil provenance into a sanctions-evasion tool.

The next questions are whether Iraq's government opens its own inquiry, whether OFAC names buyers or banks that handled allegedly disguised cargoes, and whether militias respond to the sanctions with political pressure or security threats. U.S. officials have not cited an Iraqi or Iranian response in the primary statements reviewed for this article.

For Washington, the case tests whether sanctions can squeeze Iranian financing without punishing legitimate Iraqi oil exports. For Iraq, the allegation cuts at sovereignty: a senior oil official accused by the United States of helping move national resources for the benefit of a neighboring power and militia allies.