The Ministry of Industry, Mine and Trade said Iran's funds held in Iraq will be used for purchasing food and medicine.
In a letter to food, drugs and cosmetics industries, the ministry referred to updates on the forex assets in the neighboring Arab country calling on them to submit their import needs, Tasnim news agency said without elaboration.
Baghdad owes more than $6 billion in unpaid energy bills including $2 billion in arrears and $1 billion in contract violations. Three billion dollars are blocked by the Trade Bank of Iraq, due to the 2018 US economic blockade and banking restrictions.
Almost 20 million cubic meters of gas is exported to the neighbor every day (worth at least $200 million per month). However, Iraq has not paid a large part of the bills.
Although plans were announced to help Baghdad settle its massive debts in installments, the war-ravaged country has fallen short of clearing its debts that keep on getting bigger.
The debt for electricity import is said to be in the region of $1 billion. Iraq is the biggest importer of Iranian electricity for more than a decade. It needs 23,000 megawatts of electricity for spiraling domestic demand but decades of war, civil strife and terror attacks have destroyed its power infrastructure.
Iraq has a 7,000 MW power deficit and large parts of the country have for years struggled with systematic blackouts of several hours a day, especially during the brutal summer months. Electricity shortages have often led to violent public protests.
Last year Iran used its frozen funds in Iraq to pay for COVID-19 vaccine imports.