Iraq Formally Designates Hezbollah and Houthis as Terrorist Entities

The Iraqi government has taken a significant and potentially sensitive political step by officially designating both Lebanon’s Hezbollah and Yemen’s Houthi movement (Ansar Allah) as “terrorist entities” within the country. This formal decision, which mandates the freezing of all their funds and assets inside Iraq, was published in the Iraqi Official Gazette in mid-November 2025, marking a pivotal shift in Baghdad’s stance toward Iran-backed regional actors.
Driven by Financial and Security Imperatives
The designation was made by the high-level Committee for Freezing Terrorists’ Funds, which is chaired by the Governor of the Central Bank and includes senior representatives from the Ministries of Finance, Interior, Foreign Affairs, and the Counter-Terrorism Department. The decision, officially numbered (61), classified 24 organizations as terrorist entities, with Hezbollah and the Houthis specifically cited for “Participation in committing a terrorist act.”
While politically controversial given the strong presence of Iran-aligned militias within Iraq’s own security structure, government advisers indicate the move was largely driven by financial necessity rather than a primary political shift against Iran. The decision is understood to be a direct consequence of intense pressure from the United States to shield the Iraqi banking system from sanctions. By formally freezing the assets of groups already designated as terrorist organizations by Washington, Baghdad is attempting to satisfy the stringent requirements of international anti-money laundering and counter-terrorism financing bodies, thereby preventing debilitating penalties on core Iraqi institutions like the Central Bank and the State Organization for Marketing of Oil (SOMO).
Impact on Iran’s Regional Axis of Resistance
The decision carries immense geopolitical weight. Hezbollah and the Houthis are central components of Iran’s regional “Axis of Resistance,” and Iraq has historically been reluctant to take explicit measures against them, largely due to domestic political pressures and the direct influence of powerful Iran-backed Iraqi militias. By formally blocking the financial channels of these two key groups, Iraq is directly complicating Iran’s ability to finance and coordinate its proxy network across the Middle East.
This move could significantly impact the Houthis, who have reportedly been utilizing Iraqi financial avenues, including through Iran-backed Iraqi militias, to circumvent US sanctions imposed after their aggressive attacks on Red Sea shipping. The designation also puts financial constraints on Hezbollah, which has historically relied on various illicit and legal financial streams operating through the region. Although the decision is primarily a financial one, it signals a growing willingness by the Iraqi government to prioritize its national economic stability and international financial compliance over full alignment with Iran’s regional strategy.