Iran-Iraq gas and electricity payment mechanism yet to be finalised: official

ERBIL, Kurdistan Region — Baghdad is yet to find a financial mechanism to settle its debts with US sanction-stricken Iran, secretary general of Iran-Iraq Joint Chamber of Commerce Sayyid Hamid Hosseini said on Saturday.

Iran, which provides up to 40 percent of Iraq's electricity needs, has struggled to recoup payments from Baghdad since the US government withdrew from the 2015 nuclear deal and re-imposed economic sanctions on Tehran, effectively cutting Iran off from the global financial system.

"The problem we face with Iraq now is we have not been able to reach a mechanism to receive the fees for gas and electricity," Hosseini said in an interview with the Islamic Revolutionary Guard Corps (IRGC)-affiliated Tasnim news outlet.

On a daily basis, Iran currently exports 1200 to 1500 megawatts of electricity to Iraq, he added, and 37 to 38 million cubic meters of natural gas, used to feed several of Iraq’s power stations.

"Iraq needs 25,000 megawatts, but currently can only produce 15,000 to 16,000 megawatts," he claimed. "Iraqi people are facing severe shortages of electricity and power cuts."

Iran has exported electricity and natural gas to Iraq for more than a decade. It currently exports 3.5 to four billion dollars’ worth of electricity and natural gas a year to its western neighbour.

US sanctions have prevented Baghdad from repaying the roughly $2 billion it owes in unpaid debts to Iran. Under the terms of four consecutive sanction waivers Washington has granted Iraq, it is obliged to stop trading with Iran in dollars.

Casting doubts on a possible easing of Iraq’s gas dependency on Iran, Hosseini added that he does not expect Iraqis to be able to capture and exploit its associated petroleum gas – a process for which Iraq is currently seeking investment and infrastructural assistance – for another three to four years.

Efforts to establish a payment mechanism have been long-running, with Iranian central bank governor Abdolnasser Hemmati meeting with his Iraqi counterpart in Baghdad to sign an agreement for Iraq to settle its dues back in February.

Failure to have finalized a payment route comes despite Hosseini telling Rudaw English in early July that the financial mechanism between Iran and Iraq designed to bypass US sanctions was fully "operational," and that Baghdad had already started depositing money owed to Iran into a special account at the privately-owned Trade Bank of Iraq (TBI). 

Iraq is a key source of export revenue for Iran, with $9 billion of Tehran’s $25 billion in non-petroleum exports heading to Baghdad, according to the Joint Chamber of Commerce.

Despite pending payments, an increasing number of land border crossings are opening up between the two countries to facilitate trade.

Current trade volume between Iraq and Iran stands at $13 billion, according to Hassan Danaeifar, secretary of the Committee to Develop Iranian Economic Ties with Iraq.