There was some confusion when on November 5 Secretary of State Mike Pompeo announced countries that received waivers from U.S. sanctions on Iran, and Iraq was not mentioned. The Secretary said that China, India, Italy, Greece, Japan, South Korea, Taiwan and Turkey could continue to buy Iranian oil. Iraq was not on the list when just three days before it was reported that Baghdad would be allowed to continue to by certain products from Tehran. It now turns out, Pompeo was simply talking about Iran’s oil exports, while Iraq was a separate case.
Stories about the U.S. stance towards Iran-Iraq Trade went back and forth. Baghdad sent a delegation to Washington to ask for exemptions. Then on October 23, the Treasury Department announced that it would not offer any exceptions. A few days later, Iraq said that it would stop trucking oil to Iran to comply with U.S. restrictions. At the start of November, the U.S. stated that Iraq would be allowed to import gas, electricity, and food from Iran on the condition that Iraq use dinars and not U.S. dollars. It then came as a bit of surprise when Secretary Pompeo read off the list of exempt countries and Iraq was not among them. It was then explained that Iraq would have its own status.
Iran was ready for this eventuality. According to Al-Hurra, the Iranians are going to set up an account in a state run bank where its transactions with Iraq will be conducted using dinars and euros.
What will this mean for Iraq? It will have to wean itself of all the cheap consumer goods it buys from Tehran. There are likely plenty of alternatives such as China, it’s just a matter of making new deals to buy from them. Iraq is also supposed to eventually cut its reliance upon Iranian supplies of natural gas and electricity. Iraq currently depends upon Iran for nearly 1/3 of its power supply. In October, Baghdad signed a $15 billion deal with General Electric to add up to 14 gigawatts of power and upgrade existing power plants to increase their capacity. The Trump administration pushed the Mahdi government to sign with GE. The Oil Ministry is also working on boosting its natural gas industry, and successfully increased its production from 2017 to the first quarter of 2018. This will all help to cut the needs for these products from Iran. Even though it will take years for these projects to come to fruition, and who knows what will happen with sanctions by then, Baghdad can point to these projects to show Washington it is attempting to follow the new sanctions regime.
Egan, Matt, “GE gets a badly needed win in Iraq,” CNN, 10/22/18
Al Hurra, “Iranian official: We will open a special account in an Iraqi bank,” 11/6/18
Iraq Oil Report, “Iraq seeks sanctions waiver on vital Iran energy trade,” 9/23/18
Al Masalah, “The US Treasury rules out Iraq’s exclusion from sanctions against Iran,” 10/23/18
Reuters, “U.S. to grant Iraq waiver over Iran sanctions for gas, food items – Iraqi officials,” 11/2/18
Rudaw, “Iran oil sanctions: Pompeo doesn’t name Iraq among 8 exempt nations,” 11/5/18
Van Heuvelen, Ben, Kullab, Samya, Al-Aqily, Ali, Al-Jabiri, Jassim, “Iraq ramps up gas supply after years of delay,” Iraqi Oil Report, 10/18/18
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