US issues waiver letting Iraq pay Iran for electricity

New national security waiver will allow Iraq to send power payments through non-Iraqi banks for first time

Iraq's Electricity Ministry said the country faced power cuts after crucial energy supplies from Iran were cut because of non-payment. AP

US Secretary of State Antony Blinken on Tuesday signed a new national security waiver letting Iraq pay Iran for electricity through accounts at non-Iraqi banks for the first time, a US official said.

The official told Reuters that the US hoped the 120-day national security waiver would help to stop Iran pressuring Iraq for access to the money, which earlier could only be deposited into restricted accounts in Iraq.

Tehran has pushed Baghdad to secure US permission to release the funds by cutting Iranian natural gas exports to Iraq, limiting its ability to generate power and forcing unpopular electricity cuts during the sweltering summer.

Under US sanctions, Iraqi payments for Iranian electricity can only be released from the restricted accounts in Iraq – with US permission – for Iran to buy humanitarian goods.

The new waiver will allow Iraq to deposit its payments for Iranian electricity into restricted accounts at banks outside Iraq.

Iran's access to those funds still requires US permission and they can only be spent for humanitarian purposes.

The US official said Washington hoped the new waiver would ease Iranian pressure on Iraq to access the money, in effect by transferring this pressure from Iraqi authorities to the nations where the third-party banks are.

“We have to help the Iraqis with this perennial pressure from the Iranians to access the money,” said the US official, adding that Washington had expanded the waiver at Baghdad's request.

Iraq relies on Iran for gas imports that power about 30 per cent of the country's electricity supply in thermal power stations.

Iraq, which has about 131 trillion cubic feet of proven gas reserves, has struggled to build the infrastructure to capture and process gas for power generation, much of which is produced alongside oil extraction.

Oilfield operators in the country often choose to burn off the associated gas, rather than build costly infrastructure to process it, having already ploughed billions of dollars into oilfield development.

Critics say the resultant waste has delayed efforts for Iraq to solve its electricity crisis and led to high levels of carcinogenic pollutants in oil-producing regions.

A 2011 project to accelerate gas capture and provide power for four million homes across southern Iraq has also faced numerous delays, amid a struggle to co-ordinate the work of the ministries of electricity and oil, and work out a framework with international oil companies for pricing the gas to build infrastructure.

This has led Iraq to rely increasingly on Iranian gas but in recent years the Basra Gas Project has made significant progress.

Iraq's Prime Minister Mohammed Shia Al Sudani in May said Iraq could be self-sufficient in gas for power stations within about five years.