Iraq says work ongoing with US over Iran gas payments

Iran supplies about a third of Iraq's electricity

A web of electrical wires between buildings in Baghdad. Iraq has long suffered from energy supply problems. AFP

Baghdad has said it is in contact with Washington about some $10 billion it owes Iran in gas payments.

“Work is continuing” with the US regarding payments to Iran, Iraq's Prime Minister Mohammed Shia Al Sudani said on Tuesday, telling reporters the debt his country owes to its neighbour has fallen to $9.2 billion.

A delegation from Iraq's Central Bank and the Trade Bank of Iraq travelled to Oman on Tuesday “to agree on a formula for transferring these funds to the Sultanate of Oman, in agreement with the US Treasury”, he said.

While Iraq heavily relies on Iran for electricity – amounting to a third of its energy needs – it cannot pay Tehran directly because of US sanctions.

It has previously paid Iran through restricted Iraqi accounts, but requires US permission to do so.

Iran has pressured Iraq to obtain US permission to release the funds by cutting natural gas exports, damaging an already fragile power grid and increasing regular power blackouts during the summer.

In July, the US signed a waiver allowing Iraq to send the payments through foreign banks for the first time.

The 120-day waiver was issued with the hope of reducing Iranian influence on Baghdad.

“We thought it was important to get this money out of Iraq, because it is a source of leverage that Iran uses against its neighbour,” said State Department Spokesman Matthew Miller.

He said that the funds would be under the same restrictions as in Iraq, meaning they can only be used for humanitarian assistance.

A leading bloc in the Iraqi Parliament called last month for “swift action” to repay the debt to Iran.

The Co-ordination Framework called on the government “to contact the US side and urge the immediate unlocking of the unpaid bills related to Iranian gas imports.”

The bloc, which dominates the parliament with about 130 seats in the 329-member assembly, is close to Tehran.

MPs from the Co-ordination Framework have also blamed the US for the power cuts in Iraq, although Tehran has cut gas exports to the country in the past, usually due to high demand in Iran in the winter and summer months.

Experts say the root of Iraq's electricity problems are decades of underinvestment in infrastructure after years of conflict as well as generous subsidies that undermine investment in new power production.

In June, Mr Al Sudani proposed a barter deal with Iran that would have involved sending 250,000 barrels of oil per day to Tehran in exchange for gas, but US officials said this would have violated sanctions.

Iraq depends on Iranian gas imports despite having about 132 trillion cubic feet of proven gas reserves.

A project to invest billions of dollars in capturing and processing gas associated with oil production that began about 10 years ago is finally making headway, however.

The Basra Gas Company, a consortium of Mitsubishi, Shell and the Iraqi South Gas Company, aims to eventually supply power to about four million homes.

And a project with French oil major Total, finalised last month, will also ramp up gas production.