Mr. Pompeo has told the leaders of power-starved Iraq that they must stop buying Iranian natural gas. And he has yet to renew a waiver, which expires on Tuesday, to allow Iraq to buy electricity from Iran. Senior officials at the Pentagon support extending the waiver for Iraq.
If they are forced to stop buying electricity from Iran, Iraqi officials warned, protests could destabilize the government of Mr. Abdul Mahdi, who was named prime minister in October. In February, he said Iraq would not comply with the sanctions, citing the 13 years of United Nations sanctions against the government of Saddam Hussein that took a bruising toll on Iraqis throughout the country.
Iraqi officials now are exploring how to buy natural gas from Iran but still protect Iraqi banks from American penalties.
Earlier this month, and against the advice of officials at the Pentagon, the State Department announced that it was designating an Iraqi militia, Harakat Hezbollah al-Nujaba, and its leader, Akram Abbas al-Kaabi, as “specially designated global terrorists.” The group is funded by the Iraqi government, but the State Department said its loyalty was to Iran.
Mr. Pompeo also is seeking to designate a more significant group, Asa’ib Ahl al-Haq, as a terrorist organization. Asa’ib Ahl al-Haq won 15 seats in Iraq’s Parliament last year. Though its officials now say they tolerate the United States military presence in Iraq, the militia fought American troops at the height of the Iraq war. The militia is led by Qais al-Khazali, a former American detainee who is accused of masterminding an ambush in the holy Shiite city of Karbala that killed five American soldiers in 2007.
After Mr. Trump announced in December that he would withdraw United States forces from the fight against the Islamic State in Syria, American officials began quietly negotiating with Iraqi counterparts to shift hundreds of commandos and support troops to Iraq. The initial urgency for the shift has cooled, however, now that Mr. Trump has agreed to leave 400 American troops in Syria rather than withdraw all 2,000. But many Iraqi lawmakers are reluctant to give the 5,200 American troops already in Baghdad and at a handful of other bases much freedom to move or operate.
The terrorist designations could complicate talks over those issues and a range of diplomatic matters by fueling animosity toward the United States. One senior American official said the designations could lead to barring members of the Iraqi and Iranian governments from traveling to the United States — including to the United Nations in New York.
Administration lawyers have been poring over the proposed language for the terrorist designations and their possible consequences. So far, that has kept Mr. Pompeo from issuing them, two senior American officials said. One official said that trying to enforce the sanctions that the terrorist designations would prompt would be a nightmare.