Iraqi officials defend barter deal with Iran, say it does not violate US sanctions on Tehran

BAGHDAD (AP) — Iraqi officials on Thursday defended a deal signed this week to swap oil for gas with Iran, saying it does not violate U.S. sanctions on Tehran but will help ease the deepening crisis electricity in Iraq.

The remarks come as the government in Baghdad struggles to strike a balance between its two main allies, Washington and Tehran. An earlier deal in which Iraq bought gas from Iran and paid for it in dollars was suspended because Washington refused to approve sanctions waivers. This led Iran to cut gas supplies, causing serious power shortages in Iraq.

After decades of power shortages due to war, corruption and mismanagement, oil-rich Iraq has become heavily dependent on imported Iranian gas to meet its electricity needs. The shortages in recent months are partly due to US restrictions on remittances to Iran.

Imports from Iran are especially vital during the scorching summer months, when Iraqis are forced to pay for private diesel generators or suffer from temperatures that often exceed 50 degrees Celsius (122 degrees Fahrenheit).

Washington granted certain exemptions to its sanction against Iran over Tehran’s disputed nuclear program to allow Iraq to meet its energy needs.

On Tuesday, Iraqi Prime Minister Mohammed Shia al-Sudani announced the barter deal with Iran, but warned Washington had still not granted Baghdad a waiver to pay $11 billion it currently owes. Tehran, leaving the money trapped in Iranian accounts in the state. owned the Trade Bank of Iraq.

As a result, he said Iran had reduced its gas exports since early July and Baghdad’s supply had fallen by more than 50%. After the barter deal, al-Sudani said that “the supply of Iranian gas has resumed” and “will return to the same quantities as before”.

According to a senior politician close to al-Sudani’s government, the barter deal would see Iraq send 250,000 barrels of crude oil daily to Iran. The official spoke to The Associated Press on condition of anonymity to discuss the deal.

The official said US sanctions would not be breached because they apply to financial transactions – not barter deals. Yet Iraq has not officially notified Washington of the arrangement, he said.

The US State Department did not immediately respond to requests for comment. There was no immediate comment from Tehran.

Washington is concerned about Iran’s relationship with Iraq, especially with a large number of Iran-backed groups in its government and parliament.

At the end of 2022, the United States tightened measures on Iraq’s access to its foreign exchange reserves housed in the Federal Reserve, after it suspected that money was being transferred to Iran, Syria and other sanctioned entities. This decision led to a drop in the value of the Iraqi dinar and a spike in public anger in Iraq.

Yesar Al-Maleki, an analyst at the Middle East Economic Survey, said cash-strapped Iran was pressuring Baghdad to urge Washington to grant waivers.

“With Iraq unable to transfer funds due to sanctions imposed on the Iranian banking sector, Tehran has prioritized its local consumers,” Al-Maleki told the AP.

News of the barter deal comes days after Iraq announced the signing of a massive $27 billion energy deal with French giant TotalEnergies that would bolster local power generation projects. Analysts say the deal gave Western countries hope it would divert Iraq from the need to import Iranian gas.

Al-Sudani reinforced that optimism on Tuesday, saying the projects “will end the need for imports after completion within two to three years.”


Chehayeb reported from Beirut. Associated Press writer Qassim Abdul-Zahra contributed to this report from Boston.

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