Payment of the debt was a vital requirement to ensure energy supplies were available for Iraq's power plants during the intense heat of the summer months, when electricity demand surges as people seek to keep cool.
The failure to pay comes as Iraq’s oil revenue imports reached another record high. Iraq's revenue reached $11.436 billion in May and has surpassed $10bn every month since March.
The last time oil revenue in Iraq was as high was in April 2012, when it reached almost $8.8bn.
“Iran had demanded the payment by Iraq of its financial obligations for the payment of the gas,” Iraq's Electricity Ministry said in a statement.
However, “the delay in the adoption of the budget”, as well as parliamentary blockages stalling a bill that aimed to guarantee debt payments in the electricity sector, led to “delays”.
Supplies have already been reduced by five million cubic metres of gas per day, limiting the operation of the power stations and “reducing the hours of electricity supply”, the ministry said.
Iran gas supply issues
Iran currently provides a third of Iraq's gas and electricity needs but supplies are regularly cut or reduced, aggravating daily load-shedding.
Iraq has struggled to pay Iran on time, first because of spending on security during the war against ISIS between 2014 and 2017 — which followed a slump in oil prices — and later due to the Covid-19 pandemic, which caused an unprecedented collapse in oil prices.
Iran also struggles to meet domestic demand, particularly during Tehran's cold winters and at the height of summer, when high temperatures scorch the south of the country.
Iraq's Electricity Ministry highlighted the “efforts of parliament and the government” to allow the ministry to “find compromise solutions with Iran in order to pay the arrears and guarantee the supply of gas”.
The debt, which was due to have been paid by the start of June, dates back to 2020.
Payment stalled amid sanctions against Iran by the US, which mean that Baghdad could not pay directly for energy imports in cash.
Instead, it must be used in a complicated process to buy goods from the agriculture or pharmaceutical sectors.
Last year, when temperatures in Iraq soared to 52°C in the shade, swathes of the country suffered blackouts, sparking several sporadic protests and prompting the electricity minister to resign.
Iraq is already sweltering, with temperatures climbing to 48°C on Thursday, the meteorological service says.
Ranked as one of the world's five most vulnerable nations to the effects of climate change, Iraq has been hit by a series of sandstorms in recent months, sending thousands of people to hospital with respiratory problems.