US Treasury Lifts Sanctions On Iraq's Fly Baghdad Airline As Hormuz Talks Advance

The US Treasury's Office of Foreign Assets Control removed Fly Baghdad Airlines from its Specially Designated Nationals list on Wednesday, along with its aliases Iraq Express and Fly Baghdad, and two of its Boeing 737 aircraft carrying tail numbers YI-BAF and YI-BAN, according to Treasury notices reported by Reuters, Al-Monitor, and The National.

Washington first blacklisted the Baghdad-based carrier in January 2024. The original designation accused the airline of helping the IRGC's Quds Force move fighters, weapons, and money across Iraq, Syria, and Lebanon in the aftermath of the October 7, 2023 attack on Israel, according to The National. The Treasury Department also sanctioned Kataib Hezbollah at the same time, saying the Iran-backed militia used Fly Baghdad to transport fighters and launder funds.

That designation had real consequences. The Iraqi government ordered all Fly Baghdad flights grounded pending an investigation, The National reported.

Now the airline is off the hook, mostly. A Treasury official, speaking anonymously to AFP, said Fly Baghdad went through OFAC's administrative reconsideration process and "has demonstrated major changes to their operations such that their listing is no longer warranted." The official added that Wednesday's action "was done as part of the normal administrative process upon review of the specifics related to FBA."

Not everyone connected to the airline got a clean slate. Basheer Abdulkadhim Alwan al-Shabbani, identified as the company's owner when sanctions first hit, remains on the blacklist. His designation was simply rewritten to cite the IRGC Quds Force directly instead of Fly Baghdad, according to ZeroHedge and The National.

Treasury was explicit, repeatedly, that this isn't a signal of softening toward Tehran. "This is not indicative of any shift in US policy toward the Government of Iran, the Islamic Revolutionary Guard Corps-Qods Force, any designated terrorist organization, or any person who supports or acts on behalf of any of these," the same official said, a line that showed up nearly verbatim in reporting from ZeroHedge, Al-Monitor, and NDTV Profit.

There's a broader bureaucratic story here too. Treasury Secretary Scott Bessent launched a review of the entire US sanctions program in May, aimed at scrubbing outdated designations and easing compliance headaches for banks. "Sanctions should not linger so long that their intended effects create unintended consequences," Bessent told his G7 counterparts, according to The National. Just last week, Treasury pulled 84 companies and individuals off its list entirely, including 33 Iraq-related firms dating back to 1991 or 1992.

Fly Baghdad's delisting comes as part of a much larger cleanup of a sanctions list that reportedly runs past 17,000 names, per The National.

The timing, however, coincides with US and Iranian officials signaling they're nearing an agreement to reopen the Strait of Hormuz after weeks of disruption. President Trump told reporters Tuesday night that talks with Iran had been "very good" and a deal "could happen tomorrow or the next day," while also warning on Fox News that Iran will "get hit really hard" if it backs out again.

Iran hasn't confirmed direct talks with Washington. It has confirmed negotiations with Oman, which shares the Strait of Hormuz with Iran. Iranian Foreign Ministry spokesperson Esmaeil Baghaei said Wednesday that Iran and Oman have agreed on the physical coordinates of a proposed safe shipping route for commercial vessels, calling the talks "professional" and "progressing," according to NDTV Profit. A joint statement is reportedly in its final drafting stage.

Reuters, however, reported Wednesday that Iranian and regional officials dispute Trump's claim that a Hormuz deal is imminent, according to Al-Monitor. A senior Iranian source and two regional officials told Reuters the proposed arrangement would actually give Tehran control over ships entering the Gulf through the strait, a detail that, if accurate, complicates the picture considerably. Handing Iran authority over Gulf shipping lanes is not a minor footnote, and it's the kind of detail that deserves scrutiny rather than a passing mention.

Treasury's insistence that the Fly Baghdad delisting is routine paperwork, not diplomacy, is defensible. Bureaucratic sanctions reviews are real, and Bessent's broader cleanup effort predates the current Hormuz talks by months. It's also true that a Treasury Department easing pressure on an Iran-linked airline during active negotiations with Tehran is exactly the kind of coincidence that invites suspicion, whether or not it's warranted.

Nobody in these sources has offered proof the delisting was a negotiating chip. Nobody has proven it wasn't. What's confirmed: the airline's owner is still sanctioned, the IRGC Quds Force designation against him got stronger not weaker, and the US government says its Iran policy hasn't budged. Whether the Strait of Hormuz deal actually materializes, and on what terms, remains the open question that will tell us more than this one delisting ever could.