Iran and Iraq reach deal to release trapped energy payments

An agreement was reached between the Central Bank of Iran, Central Bank of Iraq and the Trade Bank of Iraq to unfreeze Iran’s financial assets in the neighboring country.

13 October 2020
ID : 22612
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An agreement was reached between the Central Bank of Iran, Central Bank of Iraq and the Trade Bank of Iraq to unfreeze Iran’s financial assets in the neighboring country.

Abdolnasser Hemmati, Governor of the Central Bank of Iran, talks with his counterpart in Baghdad.

An agreement was reached between the Central Bank of Iran, Central Bank of Iraq and the Trade Bank of Iraq to unfreeze Iran's financial assets in the neighboring country. 

Abdolnasser Hemmati, the CBI chief, announced the deal during his one-day trip to Baghdad. "Iran will use the freed assets to import basic goods," he was quoted as saying by the government's official news portal on the sidelines of the meeting with his Iraqi counterpart, Mustafa Ghalib Mukheef. 

The move is in line with an earlier agreement between the two sides in February 2020 in which the two agreed on settling Iraqi arrears via a trade mechanism to supply basic goods to Iran.

Iranian assets are blocked in Iraqi banks, mainly from gas and electricity exports. US economic sanctions, at least on paper, exempt trade in humanitarian goods, like food and medicine and so these transactions should not be subject to the hostile restrictions. 

According to Hemmati, payment of the arrears was mostly delayed due to “technical issues with Iraqi lenders” rather than the sanctions imposed by the United States under the watch of the controversial president, Donald Trump.  

Iran-Iraq economic relations

Iraq is the biggest importer of electricity from Iran. It needs more than 23,000 MW (per day) to meet growing domestic demand. Years of war, civil strife, terror attacks and the failed US invasion in 2003 almost destroyed its power infrastructure, creating a whopping 7,000 MW daily deficit.

The first electricity export contract between the two neighbors was signed in 2005. It has been renewed on yearly-basis over the past 15 years. This year, however, the agreement was extended for two years (2020 and 2021) by energy ministers of the two countries in June. 

Iran has exported close to 65 billion kilowatt hours of electricity to Iraq since 2005 worth $6.2 billion, of which $5.9 billion has been paid.

Besides importing electricity, Iraqi power plants also depend on Iranian natural gas to generate power. A shortage in previous summers fueled unrest in some provinces.

The US imposed sanctions on Iran in 2018 but has granted Iraq several temporary waivers to keep purchasing electricity and gas from Iran. 

Iraq is also the biggest destination for Iranian exports among the neighboring countries.

A total of 5 million tons of non-oil goods worth $1.45 billion were exported to Iraq during the first quarter of the current Iranian year (March 20-June 20).

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