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Iraq to begin paying for Iranian gas with crude oil

Move aims at simplifying payments current complicated by impact of US sanctions on Iran
A picture taken on July 15, 2019 shows a partial view of the massive Majnoon oil field, some 40 kms from the eastern border with Iran, north of the Iraqi city of Basra (AFP)

Iraq is set to start paying for Iranian gas imports with oil in order to avoid falling foul of US sanctions.

Iraqi Prime Minister Mohammed Shia al-Sudani on Tuesday said that Baghdad and Tehran had signed an agreement following several days of talks for "the import of Iranian gas to fuel Iraqi power plants, in exchange for Iraqi crude oil".

"The agreement aims to address the gas supply crisis for power plants, while tackling payment issues and complications arising from US sanctions," said the statement from the prime minister's office.

Iraq is reliant on Iranian gas for a third of its energy needs, but is unable to directly pay for it as a result of US sanctions on Iran, forcing the country to resort to a complicated mechanism for transferring funds.

According to the mechanism, payments were to be held in a bank account and - following approval from Washington - be used by Tehran to fund imports of food and medicines, a method which left Iraq in heavy arrears.

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Earlier this month, Iran halved its supply of gas to Iraq because of unpaid bills of more than $12 billion, according to Sudani.

Speaking in a televised address on Tuesday, he said that "as the American side did not give the necessary permission for the transfer of funds... the supply of Iranian gas was stopped."

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"Because of the transfer mechanism and its complexity, we were unable to obtain authorisation to transfer these outstanding payments so our Iranian neighbour could continue to supply us" with gas, he said.

He added, however, that a recent payment to Iran of around $1.9bn had been made and that as a result of Tuesday's agreement "we will be able to guarantee that the gas will continue to flow."

In recent years, Iraq has seen widespread unrest and demonstrations, triggered in large part by failing energy supplies during intensely hot summers.

Corruption, crumbling infrastructure and continuing instability after decades of conflict and sanctions have left the country's energy sector in a dire state, despite having some of the world's largest oil reserves.

Baghdad has recently also been exploring several possibilities for reducing reliance on Iranian gas, such as imports from Qatar and recovering flared gas from oilfields.

There has also been criticism of Washington for its refusal to allow the release of funds to Iran.

On Sunday, the Coordination Framework - a coalition of Iran-linked Shia parties that form the largest bloc in parliament - called on the government in a statement "to contact the US side and urge the immediate unlocking of the unpaid bills related to Iranian gas imports".

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