The Trump administration just re-imposed sanctions on Iraq for its nuclear program. Prime Minister Haidar Abadi announced that Iraq would follow the U.S. lead, only to have his media office backtrack a few days later. Following sanctions is extremely difficult for Iraq. Iran is not only a major trade partner, but provides essentials such as electricity. Iraq also is a major source of U.S. dollars for Tehran. Iraq didn’t follow Obama era sanctions on Iran, and will likely do the same under Trump.
On August 10, Prime Minister Abadi told the media that his government would follow the new U.S. restrictions on Iran. The PM’s media office added that Iraq would no longer use American dollars in transactions with its neighbor. On August 13 however, the premier’s office clarified that the dollar ban was the only action Baghdad would be taking for now. Trade issues would be decided later.
Cutting trade with Iran would create hardships for Iraq. Iran’s commercial attaché at the Baghdad embassy noted that the trade between the two countries totaled up to $12 billion total, while the head of the Iran-Iraq Chamber of Commerce remarked that Iran sent up to $20 million a day in goods to Iraq. That includes, food, consumer goods, electricity, and refined products. If the Abadi government were to follow the U.S. on Iran it would be faced with severe shortages. Many of the consumer products could eventually be met by other neighbors such as Turkey, but setting up electricity lines, etc. would take long term investments.
Iraq is also a major source of hard currency for Iran. The Central Bank of Iraq carries out weekly currency auctions, and has never been able to adequately regulate them. The U.S. has pressured Baghdad about these auctions for years, most recently because the Islamic State was using them to raise funds. The Central Bank responded with a number of measures, but none has been adequate to stop IS or Iran and other countries from buying dollars. In 2012 for instance, the New York Times ran a story that Tehran was using Iraqi banks to skirt sanctions and buy dollars. Then like now, Baghdad never punished anyone for these transactions. Gaining hard currency is very important for Iran during sanctions, because it allows the country to continue to buy imports and pay for goods, while its traditional sources of funding are being restricted by the United States. This is another area in which Iraq is unlikely to follow U.S. restrictions.
Glazer, Emily, Malas, Nour and Hilsenrath, Jon, “U.S. Cut Cash to Iraq on Iran, ISIS Fears,” Wall Street Journal, 11/3/15
Habib, Mustafa, “Making Nice With The Neighbours, Between US Sanctions and Iranian Influence, Iraq Will Try, And Fail, At Compliance,” Niqash, 8/9/18
Mehr News Agency, “Iran, Iraq enjoying $12bn trade volume in last 11 months,” 3/3/18
Al Noor News, “Al-Abadi: Iraq Will Abandon The Dollar In Trade Accounts With Iran,” 8/10/18
Rasheed, Ahmed, “Iraq to respect dollar ban but not all U.S. sanctions on Iran,” Reuters, 8/13/18
Risen, James and Adnan, Duraid, “U.S. Says Iraqis Are Helping Iran to Skirt Sanctions,” New York Times, 8/18/12
Yeranian, Edward, “Iran’s Economic Worries Mount as Iraq Applies New US Sanctions,” Voice of America, 8/10/18
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