Because they don’t want the planes sold to the Iraqi Air Force, and this would take them off the market, so the Iraqis could buy F-16s:

This is an interesting rumor. While the Mirage F-1 has almost reached the end of the line as an operational asset with the AdA, it remains a capable fighter and should stay in service for about another decade with a few other air forces (Ecuador, Morocco, and Iran). The Iraqis have recently requested that France delivers the 24 pre-embargo F-1s ordered at the time by the regime of Saddam Hussein in 1985. The Iraqi air force has a long, and relatively successful, history with the F-1 and is particularly looking forward to rebuilding its air defense capability with an aircraft it knows well. However, things are somewhat more complicated; there has been a long standing rumor of F-16s going to the Iraqi Air Force instead and lately, it would also appear that the UAE Mirage 2000-9s have entered the fray.

Sorry, but if this is true, and note that it only a rumor, some heads should roll.

While I understand how US Air Force officers might favor the F-16, it is something that they are familiar with, the idea that they would purchase the aircraft in order to clear the way for a defense contractor is over the top.

This appears to be a decision driven by a desire by some Air Force officers to secure a cushy gig at Lockheed-Martin in retirement, not a decision driven by the real needs and capabilities of the Iraqi military.