TEHRAN - Sharing a long border and an ancient cultural and religious heritage, Iran and Iraq have become strong economic and political allies since the fall of Saddam Hussein in 2003 and Iran has played a significant role in meeting the Arab country’s energy needs.

Iraq relies heavily on Iranian gas to feed several power plants across the country, while Iranian electricity exports also account for a major part of the country’s power supply. Iran currently meets nearly 30 percent of Iraq's daily need to 14,000 megawatts (MW) of electricity, while the country imports around 1.25 billion cubic feet per day (bcf/d) of gas through the pipeline.

The Islamic Republic, however, has recently slashed its gas exports to Iraq and has threatened further reduction due to the Arab country’s failure to meet its payment obligations.

Iraq has been claiming that the main reason for the country’s gas and electricity bills piling up has been the banking problems created by the U.S. sanctions on the Islamic Republic, saying the Iranian money is ready but it is frozen in Iraqi state banks due to the sanctions.

These claims, however, contradict the fact that the U.S. has wavered Iraq to import Iranian gas and electricity, which means the Iraqi government would be able to use legal financial facilities to pay its energy debts to Iran despite the sanctions.

Iran’s energy exports to Iraq

Given Iraq's need for natural gas for consumption in power plants, negotiations on importing Iranian gas were started in late 2010 while a contract for gas sales to Baghdad was sealed in June 2013.

The two countries also inked the agreement for the deployment of natural gas to Basra in October 2015, but the exports were halted due to payment issues.

Later on, the Iraqi government approved a deal in late 2017 to import gas from Iran to the eastern border province of Diyala, increasing purchases of the Iranian fuel, which were resumed in June 2017 after several years of hiatus.

The mentioned agreements have been effective so far and despite all the pressures and the economic hardships that the sanctions and the coronavirus pandemic created for Iran, the country has been constantly fulfilling its contract obligations, while Iraq on the other hand has been constantly falling behind on its payments.

Iraq’s energy debts to Iran have piled up to more than $6 billion, of which $3 billion is claimed to be blocked and inaccessible in the [state-owned] Trade Bank of Iraq (TBI).

Empty promises and pressured penalty

Following Iraq’s continuous promises of settling dues, the Governor of the Central Bank of Iran (CBI) Abdolnasser Hemmati visited the country in early October to discuss ways for resolving the issue.

Upon his arrival, Hemmati held talks with his Iraqi counterpart Mustafa Ghaleb, making headway in resolving the banking problems for settling the energy dues.

During the meeting, the Iraqi side assured the Iranian side that they were determined to resolve banking issues between the two countries and the debts will be paid soon.

The two sides also reached an agreement based on which the Iranian assets frozen in the Iraqi banks would be used to purchase basic goods and medicine to be imported to Iran through Iraq.

"We reached good agreements to release the financial resources of the Central Bank and use it to secure the import of essential goods for our country,” Hemmati said in October after visiting Iraq.

However, more than two months after the mentioned agreement, the Iraqi side did not materialize the document.

This led to frustration on the Iranian side, leaving the government with no choice but to take actions for retaliation, that is to cut its exports using contract leverages.

Iran slashed the amount of gas sent to its neighbor to five million cubic meters (mcm) from 50 mcm two weeks ago, Ahmed Moussa a spokesman for Iraq’s electricity ministry said in an interview published on Monday.

The Islamic Republic has also threatened to further cut the gas supply to three million cubic meters a day. This has increased the likelihood of electricity shortages and blackouts in Baghdad and other major cities.

Mutual efforts for resolving issues

Insisting on resolving the issue through diplomatic measures, Iranian Energy Minister Reza Ardakanian visited Iraq on Tuesday to meet with senior officials from the country and discuss various issues including the country’s energy debts to Iran.

Heading a high-ranking delegation, Ardakanian arrived in Baghdad Tuesday morning after which he met with Iraqi Electricity Minister Majid Mahdi Hantush, the country’s Trade Minister Alaa Al-Jabouri, and the Governor of Iraq’s Central Bank Mustafa Ghaleb.

During these meetings, the two sides discussed bilateral monetary relations and explored ways for resolving the existing banking and monetary problems to establish a payment mechanism for settling the debts.

Meanwhile, on Tuesday evening, Seyed Hamid Hosseini, a board member of Iran-Iraq Joint Economic Committee, told IRNA that Iraq’s debt to Iran for electricity import has been paid based on an electricity-for-goods mechanism, and the consignment of the goods will be entered into Iran by the next days.

Hopefully this time the Iraqi government will decide more reasonably and take the necessary measures to resolve the mentioned problems and to safeguard a long-lasting relationship that has withstood numerous ups and downs so far.

EF/MA