Iraq to Pay for Iranian Gas Imports With Oil to Bypass US Sanctions
In an effort to circumvent US sanctions, Iraq will begin paying for its Iranian gas imports with oil, according to the country’s Prime Minister, Mohammed Shia Al-Sudani. Iranian gas is crucial for Iraq’s electricity generation; however, US sanctions impose restrictions on how Iraq can pay for these imports.
Under the agreed-upon mechanism with Washington, Iraq cannot directly transfer cash to Iran. Instead, payments must be held in a bank account and used by Tehran to fund imports of food and medicines. This payment system has left Iraq with significant arrears, prompting Iran to periodically cut off its gas supplies.
Iraq heavily relies on Iranian gas imports for a third of its energy needs, but its dilapidated infrastructure and rampant corruption exacerbate the challenges it faces. Recently, Iran reduced its gas supply to Iraq by half due to unpaid bills of over $12 billion sitting in an Iraqi bank account that Iran cannot access.
To address the gas supply crisis, Iraq and Iran signed an agreement for the import of Iranian gas in exchange for Iraqi crude oil. The aim of this agreement is to ensure the continuous flow of gas while tackling the complications arising from US sanctions.
Al-Sudani highlighted the complexity of the payment mechanism due to the severity of the sanctions and the complicated procedures set by the US Treasury. However, he mentioned that Iraq had made a recent payment of approximately $1.9 billion to Iran.
The agreement with Iran paves the way for uninterrupted gas supply to Iraq, particularly during the hot summer months when power outages are a frequent occurrence. However, Iraq has been exploring alternatives to reduce its dependence on Iranian gas, including imports from Gulf countries like Qatar and recovering flared gas from oilfields.
By paying for Iranian gas with oil, Iraq hopes to maintain a reliable energy source despite the restrictions imposed by US sanctions. This arrangement will enable Iraq to continue meeting its energy demands and mitigate the detrimental impact of power outages on its population and economy.
It remains to be seen how successful Iraq’s efforts will be in diversifying its energy sources and managing its payments for gas imports. The country’s complex geopolitical situation and dependence on Iran make it challenging to navigate the intricate web of international sanctions and financial limitations. However, the recent agreement with Iran offers hope for stability in Iraq’s energy sector while it explores long-term solutions to address its energy needs.
