The treasury department accused Iraq’s deputy minister Ali Maarij Al-Bahadly of abusing “his position to facilitate the diversion of oil to be sold for the benefit of the Iranian regime and its proxy militias in Iraq”.

It said Maarij enabled an Iran-affiliated oil smuggler to mix Iranian oil with Iraqi oil before being shipped to global markets and falsified documents that helped Iranian-affiliated networks to sell the mix disguised as purely Iraqi oil.

It said Maarij authorised trucking several million dollars’ worth of oil per day from Iraq’s Qayyarah oil field for export, helping Iranian networks.

Iraq’s oil ministry and the deputy minister did not immediately respond to requests for comment.

In March, Iraq’s oil minister, Hayan Abdel-Ghani, said Iranian oil tankers stopped by US forces in the Gulf were using forged Iraqi documents. Tehran denied using such documents.

The move to sanction the deputy minister comes as the US and Iran edge toward a temporary agreement to halt the war, with Tehran reviewing a proposal that would stop the fighting but leave the most contentious issues unresolved.

“The US treasury is also sanctioning three senior leaders of Iran-aligned militias Kata’ib Sayyid Al-Shuhada and Asa’ib Ahl Al-Haq,” it said.

“Treasury will not stand idly by as Iran’s military exploits Iraqi oil to fund terrorism against the US and our partners,” treasury secretary Scott Bessent said in a statement.

The sanctions freeze any US assets of those targeted and generally bar Americans from dealing with them.