Iran Energy Minister in Baghdad Over Trade Dispute

Iran's Energy Minister Reza Ardakanian met with officials in Baghdad on Tuesday amid a trade dispute that has seen electricity reduced for 40 million Iraqis already facing shortages for decades.

The National Iranian Gas Company (NIGC) said in a statement that the Iraqi electricity ministry owed it "more than six billion dollars in arrears.”

After years of complaints from Tehran and requests for more time from Baghdad, "Iran will reduce from five to three million cubic meters of its gas supply to Iraq" needed to run power plants, Iraqi electricity ministry spokesman Ahmed Moussa told state television.

Iraq buys gas and electricity from neighbouring Iran to supply about a third of its power sector, worn down by years of conflict and poor maintenance.

But it must navigate sanctions imposed on trade with Tehran by the United States, which blacklisted Iran's energy industry in 2018 but granted Baghdad a series of temporary waivers.

On Tuesday, Ardakanian met with Iraqi Electricity Minister Majid Hantoush, Prime Minister Mustafa al-Kadhimi and Iraq central bank governor Mustafa Ghaleb Mukhif.

Iran is meant to receive payments through public banking institutions to avoid US sanctions.

"The Iraqi Electricity Ministry owes more than $2 billion in arrears and $1 billion in contract violations, while $3 billion is blocked and inaccessible in the Trade Bank of Iraq," Iraq's main public bank, the NIGC statement said.

For decades, Iraqis have had to cope with power outages that can last up to 20 hours a day in some areas.

Virtually all households are connected to private generators, but the prices of those services have recently soared amid a severe economic crisis accompanied by currency devaluation.

Using its own fuel plus Iranian gas, Iraq can produce a total of around 16,000 megawatts of electricity.

That is far below demand, which hovers around 24,000 MW but can jump to 30,000 in summer, when temperatures reach a sizzling 50 degrees Celsius (122 Fahrenheit).

Photo: IRNA

US Grants Iraq Brief 30-Day Waiver for Iranian Gas Imports

Washington on Sunday granted Iraq a 30-day extension to a waiver allowing it to import Iranian gas for its dilapidated power grids despite American sanctions, an Iraqi official said. 

The extension comes as Baghdad faces a cocktail of crises, including collapsing oil prices and the novel coronavirus pandemic and political deadlock over government formation.

Iraq relies on gas and electricity imports from its neighbor Tehran to supply about a third of its power grid, crippled by years of conflict and poor maintenance.

The US blacklisted the Iranian energy sector in late 2018 and has granted Baghdad a series of waivers, usually for 45, 90 or 120 days.

Last month, Washington granted Iraq a 30-day extension—its shortest yet—and extended it again on Sunday.

"It is extended for another 30 days. There are no specific conditions," the Iraqi official told AFP. 

Iraqi officials had expected the waiver would be extended long enough to allow new prime minister designate Mustafa Kadhimi to pull together a government. 

The PM-designate is in talks with Iraq's political parties to form his first cabinet, and has until May 9 to submit it to parliament for a vote of confidence. 

Kadhimi had a strong showing of support from across Iraq's political spectrum when he was nominated, but disputes over ministerial positions appear to have worn it down. 

The US has pressured Iraq to use the waivers to become independent from Iranian energy, but progress has been slow.

OPEC's second-biggest producer relies on crude exports to fund more than 90 percent of its state budget, but the crash to prices under $30 per barrel has seriously undermined the government's fiscal position. 

In a further blow, coronavirus has spread across the country, with more than 1,800 confirmed cases and 87 deaths announced by the health ministry. 

Photo: Iraq PM

US Grants Iraq Shortest Sanctions Waiver Yet for Iran Gas

The United States on Thursday granted Iraq a 30-day waiver to keep importing Iranian gas despite American sanctions, two Iraqi officials told AFP, the shortest extension yet.

The US slapped tough sanctions on the Iranian energy sector in late 2018 and has granted Iraq a series of waivers, usually for 45, 90 or 120 days.

Baghdad relies on gas and electricity imports from its neighbor Tehran to supply about a third of its power grid, crippled by years of conflict and poor maintenance.

"This is the final extension," one source at the Iraqi president's office told AFP. 

The source said Washington had been frustrated that Iran was meddling in the government formation process in Iraq.

Adnan Zurfi, who has had close ties with US officials since the American-led invasion of Iraq in 2003, was nominated on March 17 and has a month to pull together his cabinet. 

"The US did not want to put Zurfi in a difficult position by not renewing the waiver," a second senior Iraqi official told AFP, confirming the 30-day extension.

The official said Baghdad had prepared a checklist at the beginning of the last 45-day waiver period of ways the country could decrease its reliance on Iranian oil. 

"But we haven't been able to accomplish any of them because of the circumstances," the source said.

Iraq has been hit by a wave of crises in recent weeks, including the government formation stalemate, collapsing oil prices and the novel coronavirus pandemic. 

OPEC's second-biggest producer relies on crude exports to fund more than 90 percent of its state budget, but the crash to a price of under $30 per barrel puts it in jeopardy. 

The COVID-19 virus has also spread across the country, with nearly 350 confirmed cases and 29 deaths announced by the health ministry. 

Photo: Wikicommons

U.S. Sanctions Are Forcing Iran to Ditch Push to Cleaner Fuels

By Verity Ratcliffe

Iran is about to burn a lot more fuel oil as a result of U.S. sanctions and new global shipping rules, reversing the nation’s progress in switching to cleaner-burning natural gas.

Power plants and other industrial facilities will burn more than 200,000 barrels a day of highly polluting fuel oil next year, double the amount Iran used in 2018, according to a forecast by Iain Mowat of consultant Wood Mackenzie Ltd.

Iran produces a surplus of fuel oil, and the excess has swelled since the U.S. began restricting the OPEC member’s exports last year. Sanctions also prevent Iran from importing the equipment it would need to refine the heavy oil product into less-polluting products like gasoline and, even if they find a way building refineries takes time.

The situation will only worsen once the International Maritime Organization restricts the use of high-sulfur fuel oil for most vessels starting Jan. 1. Commercial ships and power stations are the two main sources of demand for fuel oil. By curbing the shipping industry’s appetite, the UN agency’s new measure will leave Iran little choice but to burn more fuel oil at home to generate electricity.

Iranians “will have no choice but to dump it at whatever low price they can get for it, cut back on refining or use it themselves,” said Robin Mills, chief executive officer of Dubai-based consultant Qamar Energy. Since anyone buying Iranian fuel oil would run afoul of U.S. sanctions, even rock-bottom prices might not be enough to stimulate sales, he said.

Iran is a prime candidate for flouting the next year’s new IMO rules by using high-sulfur fuel oil in its own fleet, Mills said. International ports, however, have arranged for harsh penalties for violators.

Iran’s government says it wants to build new refineries to process fuel oil into other products. Although refineries typically take four years to complete, Tehran is hoping for faster results, said Sakineh Almasi, a spokeswoman for the parliamentary energy commission, according to the parliament’s Icana news service. Almasi didn’t say how the government plans to work around U.S. sanctions.

Meanwhile, Iran’s storage facilities for oil and fuel are filling up fast. Because the government prefers to reserve precious spare storage capacity for higher-value products such as condensate, it can’t accumulate surplus fuel oil for long, Mills said.

Iran’s use of fuel oil to produce electricity peaked in 2013 and has since fallen sharply as the country’s power plants switched to cleaner-burning natural gas. In the Iranian year ending in March 2018, they consumed about a quarter of the fuel oil they burned four years earlier, according to state-owned Thermal Power Plants Holding Co. A TPPH representative wasn’t immediately available to comment on the outlook for future consumption.

The resurgence in Iranian fuel-oil demand threatens to make the country’s notorious air pollution even worse. Fuel oil contains much more sulfur than natural gas does. Power plants emit these pollutants, blamed for causing acid rain and contributing to human health conditions such as asthma and even lung cancer.

Photo: Tasnim

Iraq Sets Up 'Loophole' in US Sanctions to Buy Iranian Power

By Maya Gebeily

Iraq is establishing a financial "loophole" to continue buying vital gas and electricity from Iran despite US sanctions, AFP has learned, mirroring a European mechanism that came into effect Friday.

The "special purpose vehicle" (SPV) would allow Iraq to pay for imported Iranian energy in Iraqi dinars, which Iran could use to exclusively buy humanitarian goods, three senior Iraqi officials said.

The workaround would allow Baghdad to keep the lights on and avoid shortage-driven protests without triggering US sanctions, as it treads an increasingly precarious tightrope between its two main allies Tehran and Washington.

One senior government official told AFP it was the product of months of talks between Iraqi, Iranian and US officials.

"The Iraqi government will continue to pay Iran for gas by depositing money into a special bank account inside Iraq, in Iraqi dinars," the official said.

"Iran will not be able to withdraw the money, but will be able to use it to purchase goods from outside Iraq."

Iraq has an outstanding bill of around $2 billion for previous gas and electricity purchases, according to Iranian Oil Minister Bijan Zangeneh.

A US official told AFP that Washington was aware of the mechanism's creation.

The US embassy in Baghdad declined to comment, while Iran's embassy did not respond to an AFP request.

Two additional high-level Iraqi officials confirmed Baghdad was establishing such an account with US knowledge, but could not say whether payments into the account had begun.

"How else is Iraq supposed to pay what it owes Iran? We have no other choice," the second official said.

‘Iran's ATM'

To offset its notorious power shortages, Iraq imports around 1,400 MW of electricity and 28 million cubic meters (988 million cubic feet) of gas for power stations from neighboring Iran, which together make up about a third of Iraq's power supply.

That reliance has angered the US, which slapped tough sanctions on Iran last year but has granted Iraq several temporary waivers to keep purchasing Iranian power until October.

The US insists Iraq wean itself off Iranian energy, but Baghdad has said that could take up to four years, during which it would need to keep purchasing at least Iranian gas.

To do so, the central banks of Iran and Iraq agreed in February to create a payment method that steers clear of US sanctions, Iran's state news agency IRNA said, without providing additional details.

That would mean not dealing in US dollars and purchasing only "humanitarian goods" allowed by the US -- like food and medicine.

"We would become Iran's ATM," another Iraqi official told AFP.

According to two of the senior Iraqi officials, Baghdad's SPV would likely be set up at the Trade Bank of Iraq.

The TBI has handled most of the Iraqi government's international transactions since its establishment in the aftermath of the US-led invasion in 2003.

A senior TBI source told AFP the bank had been involved in the negotiations but the account had not yet been created.

"The US Treasury has confidence in the TBI's processes. We are in discussions to reach an agreement, which would be fully within US exemptions," the source said.

'Like a Ledger'

It would effectively be a "loophole" around sanctions, said Ahmed Tabaqchali, senior fellow at the Sulaymaniyah-based Institute of Regional and International Studies.

"It's like a ledger. You record the money paid, and Iran has that much credit in Iraq," Tabaqchali told AFP.

The system would work much like INSTEX, a mechanism recently activated by Britain, Germany and France to trade legitimately with Iran without falling foul of US sanctions.

Still, the system is fraught with political, financial and practical complexities

Iraq's economy relies almost exclusively on oil revenues, paid in dollars, which leaves Baghdad extremely vulnerable to any punitive measures the US could take in response to a violation.

It also remains unclear what exactly Iran could purchase from Iraq as trade is heavily tilted in the other direction.

"Credit would develop in Iran's favour but how would it actually cash it?" said Tabaqchali.

Importing goods from outside Iraq would require a third party willing to take the political and financial risk of such a transaction, he told AFP.

And, ultimately, much of Iraq's transactions with Iran are cash purchases of commercial goods—something US authorities implementing sanctions are unable to monitor.

"Cash is untraceable," said Tabaqchali.

Photo: Wikicommons

US Grants Energy-Hungry Iraq New Iran Sanctions Waiver

The United States has granted Iraq another 90-day waiver to continue with vital energy imports from neighboring Iran despite re-imposed sanctions, a government source said Saturday.

The extension came after "long discussions" with Washington ahead of a looming deadline on a previous extension granted in December, the official, close to the negotiations, told AFP on condition of anonymity.

The talks came amid spiking tensions between Iraq's two closest allies—the US and Iran—following a twin attack on tankers in the Gulf that US President Donald Trump has blamed on Tehran.

Iranian energy imports are vital to Iraq, one of the world's hottest countries, which faces chronic blackouts that often leave homes without power for up to 20 hours a day.

Summer temperatures in Baghdad are already topping seasonal averages, boosting electricity consumption and raising fears of a repeat of last summer's mass protests over power outages.

To compensate, Iraq pipes in up to 28 million cubic meters of Iranian gas a day for power generation and also directly imports up to 1,300 megawatts of Iranian electricity.

That dependence is uncomfortable for Washington, which sees Tehran as its top regional foe. 

Trump reimposed crippling unilateral sanctions on Iran's energy and finance sectors in November following a decision to abandon a landmark 2015 nuclear deal between major powers and Tehran.

He gave Iraq an initial 45-day waiver to continue buying electricity and natural gas from Tehran, and in December Washington granted Baghdad an 90-day extension.

Photo: IRNA

Iraq Needs Three Years on Iran Power: Parliament Speaker

Iraq's parliament speaker voiced hope Friday that the United States will keep waiving sanctions on energy purchases from Iran, saying his country will need to import electricity from its neighbor for three years.

President Donald Trump's administration has sought to cut off all exports from Iran but has twice granted three-month exemptions to Iraq, mindful of chronic blackouts that have reignited unrest in the war-torn country.

"Hopefully this waiver will be extended until Iraq can stand on its feet economically," Speaker Mohammed al-Halbusi said at the US Institute of Peace on a visit to Washington, where he met leaders including Vice President Mike Pence.

Halbusi, a member of the Sunni minority whose bloc is nonetheless considered sympathetic to Shiite power Iran, said Iraq imported 30 percent of its power despite its plentiful oil reserves and needed about three years to develop its own capacity.

“After these three years, maybe we can see Iraq as economically independent and we won't need to import power or electricity from a foreign country. Maybe we can address this issue after three years," he said.

Speaking afterwards to reporters, Halbusi warned the United States of the negative effect of "any hasty, uncalculated step to adopt policies and procedures against countries in this region."

Trump last year exited an international agreement on curbing Iran's nuclear program and reimposed punishing sanctions with hopes of curbing the clerical regime's influence around the Middle East.

Secretary of State Mike Pompeo, meeting Thursday with Halbusi, said he supported an Iraq "open to the region and the world" and pledged US help for the country's development, according to a State Department statement that did not mention Iran.

Photo Credit: MAPNA

US Extends Iraq Waiver Over Iran Sanctions

The United States is extending a waiver to let energy-hungry Iraq keep buying power from Iran, despite Washington's campaign of sanctions aimed at curbing Tehran, an official said.

The State Department issued a second three-month exemption from Iran sanctions for Iraq, mindful not to destabilize the war-torn country increasingly reliant on Iranian gas and electricity to cope with chronic blackouts that have triggered unrest.

"While this waiver is intended to help Iraq mitigate energy shortages, we continue to discuss our Iran-related sanctions with our partners in Iraq," a State Department official said.

The official said that increasing Iraq's capacities and diversifying imports "will strengthen Iraq's economy and development as well as encourage a united, democratic and prosperous Iraq free from malign Iranian influence."

Despite Washington's repeated warnings, Iraq since the fall of Saddam Hussein has walked a fine line and maintained warm ties with Iran, with which Iraq's majority Shiite community shares religious affinities.

Iranian President Hassan Rouhani paid a visit last week to Iraq, where he highlighted Tehran's support in battling the Islamic State extremist movement and said that the United States was "despised" in the region.

Last year, US President Donald Trump pulled out of an international deal on curbing Iran's nuclear program that was negotiated by his predecessor Barack Obama.

Trump instead imposed sweeping sanctions on Iran as he seeks to reduce the regional role of the Shiite clerical state, a foe of US allies Saudi Arabia and Israel.

But the US approach has met strong opposition, with European powers encouraging their companies to stay present in Iran so as to safeguard the denuclearization accord.

Photo Credit: IRNA

Iran Foreign Minister in Baghdad for Talks

Iranian Foreign Minister Mohammad Javad Zarif met with his Iraqi counterpart in Baghdad on Sunday for wide-ranging talks, including on US sanctions against Tehran.

The visit came just days after US Secretary of State Mike Pompeo made a surprise stop on his regional tour to urge Iraq to stop relying on Iran for gas and electricity imports.

Washington has granted Baghdad a waiver until late March to keep buying Iranian gas and power, despite reimposing tough sanctions on Tehran in November.

After a two-hour meeting on Sunday, Iraq's top diplomat Mohammed Ali al-Hakim said he had talked through the restrictions with his counterpart. 

"We discussed the unilateral economic measures taken by the US and are working with our neighbour (Iran) on them," Hakim said.

Zarif slammed Washington's role in the region.

"These failures have continued for the past 40 years and my proposal to countries (in the region) is to not bet on a losing horse," he told reporters. 

Iran's foreign minister went on to meet Iraqi premier Adel Abdel Mahdi, who released a statement affirming: "Iraq's policy is built on seeking the best ties with all of its neighbors." 

Zarif is expected to attend several economic forums in various Iraqi cities, including Sulaymaniyah in the Kurdish north.

 While in Baghdad, he discussed numerous political and economic issues with his Iraqi counterpart including Syria and Yemen.

Hakim said Iraq was in favour of the Arab League reinstating Syria's membership, eight years after suspending it as the conflict there unfolded.

Following Zarif's visit, Iranian President Hassan Rouhani is also expected to travel to Iraq in the near future.

Iran is the second-largest source of imported goods in Iraq.

Besides canned food and cars, Baghdad also buys 1,300 megawatts of electricity and 28 million cubic meters of natural gas daily from Iran to feed power plants.

That dependence is uncomfortable for Washington, which sees Tehran as its top regional foe and expects Iraq to wean itself off Iranian energy resources. 

But energy ties between Baghdad and Tehran appear to have remained close, with Iran's oil minister visiting Baghdad last week to denounce US sanctions as "totally illegal.”

Photo Credit: IRNA

Iraq Gets US Sanctions Break to Keep the Lights On

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 neighbor 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 Abdel-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.

Keeping the Lights On

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 USD 6 billion (five billion euros) 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 Younes, a senior adviser for the European Institute of Peace.

"In order to get this exemption, the Iraqis had given some sort of roadmap idea," Younes 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 USD 2.5 billion—enough to fill the gap in Iraq's gas-based power generation.

Appeasing Iran

American firms may help fill the vacuum left by Iran.

In January, Iraq signed a memorandum of understanding with US energy company Orion on gas exploits at a southern oil field.

And in October, Iraq signed a memo with the US's General Electric to revamp the electricity sector, after signing a similar agreement with Germany's Siemens.

The source told AFP that GE was among several US companies proposed to Baghdad during negotiations with the US.

But Iraq has had to simultaneously reassure Iran, in part by granting it an outlet to circumvent US sanctions.

"The focus for the Iranians is informal sanctions-busting activity in Iraq, including accessing hard currency through Iraqi exchanges and through smuggling operations," said Younes.

Baghdad, she expected, would likely "turn a blind eye".

Iraq has simultaneously been granting Iranian officials more time for face-to-face meetings, including its ambassador in Baghdad, Araj Masjadi.

He met with new Finance Minister Fuad Hussein and Electricity Minister Luay al-Khateeb on Wednesday, pledging close cooperation on the power sector in the future.

For Masjadi, the meetings appeared to be a reminder of Tehran's entrenched role in Iraq.

"We need Iraq the way Iraq needs us," said Masjadi.

Photo Credit: MAPNA