Iraq clears debts to Iran in blow to U.S. sanctions

June 20, 2022 - 21:40

TEHRAN – Iran and Iraq both have announced that Baghdad has cleared its debts to Iran after months of talks over how to move forward with the financial issue.

The move came after intensive diplomacy between Iran and Iraq. A few weeks ago, Iranian Ambassador to Iraq Mohammad Kazem Al Sadeq met with the governor of Iraq’s Central Bank Mustafa Ghaleb Mokhif in Baghdad to discuss ways to clear Baghdad’s gas and electricity debts to Iran. During the meeting, they discussed aspects of banking and economic cooperation between the two countries, the payment of financial dues from Iraq, and overcoming the obstacles facing the work of Iranian companies in the country, according to Iraqi media.

The repayments of Iraq’s debts faced two major problems. First, the Iraqi Parliament’s delay in approving the country’s fiscal budget. Second, U.S. unilateral sanctions on Iran. 

Iraqi Prime Minister Mustafa al-Kadhimi had sought to find a solution to both issues. He said that “one of the problems that affected the delay in the payment of dues to Iran is the absence of the budget.” 

It seems that this issue has been resolved in recent weeks. Al-Kadhimi said Iraq’s debts date back to before 2020. Al-Kadhimi had cleared the responsibility of his government, which was formed in May 2020, from Iran's gas debt, amounting to about $1.6 billion. He said, “There are no debts owed by the current government regarding Iranian gas.”
Iraq’s Electricity Ministry echoed a similar thing in its statement announcing the repayment of debts. “The ministry announces the start of the payment procedures that will be completed within the next two days, bearing in mind that the issue of financial obligations towards neighboring Iran is one of the problems carried over by previous governments, and the current government has borne it, by heading towards internal borrowing to pay off debts, which were not paid due to the scarcity of financial allocations resulting from not approving the budget for that year,” it said. 

After much bickering, Iraq paid its debts to Iran. And Tehran confirmed that it received its money from Iraq. 

Iranian Oil Minister Javad Oji announced that Iran had received $1.6 billion in arrears for gas exports to Iraq. 

“In light of the active energy diplomacy, and after several months of negotiations, we received, hours ago, $1.6 billion in arrears due from past years regarding gas exports to Iraq,” Oji wrote on Twitter. 

“Since the beginning of this (Iranian) year (beginning on March 21) compared to the same period last year, the country's gas exports have increased by 25%, and the receipt of hard currency earnings from it has increased by 90%,” he added. 

Iraq relies on Iranian gas to operate electric power plants. Earlier, the Iraqi Minister of Electricity Adel Karim announced that Iraq needs Iranian gas for 5-10 years while confirming the ministry’s agreement with the Iranian side to supply the country with 50 million cubic meters of gas per day.

The repayment of Iraq’s debts to Iran came at a time when U.S. unilateral sanctions against Iran are still in place. This may be the reason why some analysts underlined the need for South Korea to follow in the footsteps of Iraq. South Korea owes Iran $7 billion in oil debts and has been reluctant to clear its debts. Iran has called on Seoul to pay its debts but the Iranian demand has fallen on deaf ears. 

South Korea has linked the repayment of debts to the outcome of talks in Vienna over reviving the 2015 Iran nuclear deal, officially known as the Joint Comprehensive Plan of Action (JCPOA).

Iranian Foreign Ministry spokesman Saeed Khatibzadeh pointed to South Korea’s stonewalling in his Monday presser. “A new government has come to power in [South] Korea and they have made promises that they want to pay off Iran's debt, but we have not seen any move,” he said.

Khatibzadeh noted, “We are waiting to see the difference between the new government and the previous non-compliant government in terms of debt repayment.”

He then appeared to compare South Korea with Iraq. “We give the new Korean government time to show in practice what it is doing to repay its debts, like the friends we had in the region,” he said. 

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