Baghdad – Iraq has won an exemption allowing it to buy Iranian electricity despite US sanctions, as the country plagued by chronic power shortages walks a tightrope between rivals Washington and Tehran.
With US measures imposed Monday taking aim at Iran’s banking and energy industries, there were concerns Iraq – which heavily relies on its eastern neighbour for electricity and consumer goods – would be caught in the crossfire.
But Baghdad has managed to secure an exception.
“We granted Iraq a waiver to allow it to continue to pay for its electricity imports from Iran,” Brian Hook, the State Department’s representative on Iran, announced Wednesday.
Iraq would be expected to show the US how it would wean itself off Iranian gas, a well-informed source told AFP.
“The US gave us 45 days to give them a plan on how we will gradually stop using Iranian gas and oil,” the source said.
“We told them it may take us up to four years to either become self-sufficient or find another alternative.”
The exemption came after talks between Iraqi and US officials, including from the White House and Treasury, the source said.
Iraqi government representatives have shuffled between American and Iranian officials for months in a bid to insulate their fragile economy from escalating tensions.
This week, Prime Minister Adel Abdul Mahdi said Baghdad was in talks with both sides to protect its interests.
“Iraq is not a part of the sanctions regime. It talks to everyone, and does not want to get involved in a conflict that it’s not a part of,” he told reporters Tuesday.
Baghdad has a strong relationship with the United States, coordinating on security, politics, and governance.
But its economy is profoundly intertwined with that of Iran.
Gutted by the international embargo of the 1990s and the US-led invasion of 2003, Iraq’s industries produce little.
Instead, its markets are flooded with Iranian goods – from canned food and yoghurt to carpets and cars.
These non-hydrocarbon imports amounted to some $6 billion in 2017, making Iran the second-largest source of imported goods in Iraq.
Perhaps most consequential for Iraq’s 39 million people is their dependency on Iran for electricity.
Chronic cuts, which often leave homes powerless for up to 20 hours a day, were a key driving factor behind weeks of massive protests in Iraq this summer.
To cope with shortages, Baghdad pipes in natural gas from Tehran for its plants and also directly buys 1,300 MW of Iranian-generated electricity.
That reliance is uncomfortable for the US, whose quest to diminish Tehran’s influence prompted it to reimpose sanctions on Iranian financial institutions, shipping lines, energy, and petroleum products on Monday.
Eight countries would be temporarily allowed to import Iranian crude oil.
Iraq’s special exemption appears to have come with a condition that it lay out how it would stop using Iranian electricity, said Nussaibah Younus, a senior adviser for the European Institute of Peace.
“In order to get this exemption, the Iraqis had given some sort of roadmap idea,” Younus told AFP.
One way would be capturing the gas set alight when Iraq extracts oil, which according to the World Bank represents an annual loss of about $2.5 billion – enough to fill the gap in Iraq’s gas-based power generation.