Looks like the US is holding Iraq to ransom to try to ensure it gets to keep a strong military presence in the country to look after its oil supplies.

The US is holding hostage some $50bn (£25bn) of Iraq’s money in the Federal Reserve Bank of New York to pressure the Iraqi government into signing an agreement seen by many Iraqis as prolonging the US occupation indefinitely, according to information leaked to The Independent.

US negotiators are using the existence of $20bn in outstanding court judgments against Iraq in the US, to pressure their Iraqi counterparts into accepting the terms of the military deal, details of which were reported for the first time in this newspaper yesterday.

The threat by the American side underlines the personal commitment of President George Bush to pushing the new pact through by 31 July. Although it is in reality a treaty between Iraq and the US, Mr Bush is describing it as an alliance so he does not have to submit it for approval to the US Senate.

Iraqi critics of the agreement say that it means Iraq will be a client state in which the US will keep more than 50 military bases. American forces will be able to carry out arrests of Iraqi citizens and conduct military campaigns without consultation with the Iraqi government. American soldiers and contractors will enjoy legal immunity.

So much for “liberating Iraq”.