The United States has renewed a sanctions waiver that allows Iraq to buy gas from Iran, a State Department official said on Thursday, even as Washington teased new sanctions on Tehran.
The State Department said that it believes that Iraq can take “meaningful actions” to reduce its dependence on Iranian energy despite Washington saying this was key to renewing the waiver repeatedly over the last nearly two years.
US Special Envoy for Iran Elliott Abrams said that the US would be announcing sanctions on several Iranian officials and entities later on Thursday. He said that these figures would include the judges who recently sentenced prominent Iranian wrestler Navid Afkari to death. Mr Abrams added that he thinks Iran will return to the negotiating table after the November 3 election.
The gas exemption is crucial to keep Iraq’s dilapidated and corruption-ridden electricity sector afloat. For over a year it has posed a dilemma for US policymakers who have ramped up sanctions on Iran but held off from extending the sanctions into neighbouring Iraq in a way that substantially harms their allies in Baghdad.
The 60-day waiver will allow Baghdad to continue importing gas from Iran, which supplies Iraq with the equivalent of one-third of its electricity needs. Iraq suffers crippling power cuts and imports electricity and gas from Iran to boost production.
The US blacklisted Iran's energy sector in late 2018 but has since granted its ally Baghdad a series of waivers, without which the country’s power crisis would deepen sharply.
Mudher Salih, a veteran Iraqi economist who advises the government, said in May that the electricity sector costs the treasury about $10 billion (Dh36.73bn) a year to run but generates only 7 per cent of its operating costs in revenue.
Official data show its generation capacity at 16,000 megawatts, compared with the 24,000 to 30,000 megawatts needed to satisfy demand.
In May, Washington granted Iraq a four-month extension, in implicit backing of the new government of Mustafa Al Kadhimi, a former intelligence chief who is well-connected in the US.
Washington has pressured Iraq, with little success, to use the waivers to abandon its power sector reliance on Iran. On a visit to Washington in August, Mr Al Kadhimi met with US energy firms frustrated by a lack of progress in the Iraqi market.