Iraq did not notify US of oil for gas deal with Iran

Whether or not US officials will consider the deal a violation of US sanctions on Iran, and therefore attempt to block it, is unclear

Iraqi officials did not notify their US counterparts before reaching the recent deal to barter oil for natural gas with Iran, the Associated Press reported on 16 July, in a test of Iraqi Prime Minister Mohammed Shia al-Sudani’s independence from Washington.

The oil-and-gas deal signed this week will send 250,000 barrels of crude oil to Iran per day in exchange for Iranian natural gas, which Iraq depends on for some 40 percent of its electricity production.

Iran had cut gas supplies to Iraq in recent weeks, causing severe electricity shortages at the height of a brutally hot summer due to non-payment from the Iraqi side.

The Iraqi Trade Bank must obtain waivers from the US Treasury to transfer dollars to Iran as a result of US sanctions on Tehran. Such waivers are often delayed, which has caused Iraq to owe Iran some 11 billion dollars for gas already received.

Iraqi officials contend no permission from the US for the barter deal was needed, since it facilitates non-financial transactions.

“The idea is we are not giving them dollars. Barter is a form of payment, but it’s not a payment that’s subject to sanctions,” Farhad Alaaldin, Sudani’s foreign affairs adviser, said. “We don’t want to have the repeated Iranian use of the nonpayment as an excuse to cut the gas supply every year.”

But analysts speculate the deal may nevertheless violate US sanctions on Iran, thus risking US retaliation.

The US reluctance to provide payment waivers has led to accusations Washington is using Iraq as a proxy to squeeze its close neighbor Iran.

According to the Wall Street Journal, “U.S. officials use their de facto control over Iraq’s payments to Iran as a way to deny Tehran hard currency, but the new procedure announced by Sudani’s government appears to offer Iran a way to sidestep those limits if it can refine and resell the oil it receives from Iraq on world markets.”

In late 2022, the United States limited Iraq’s access to its own foreign reserves held at the US Federal Reserve Bank after Iraq was suspected of transferring funds to Iran, Syria, and other sanctioned entities. This step led to a sharp drop in the value of the Iraqi dinar and an escalation of popular anger in Iraq.

Since the illegal US invasion and occupation in 2003, Iraq’s oil revenues have been deposited at the US Federal Reserve.