2018-08-23 20:02:00

Iraq’s economy is so closely linked to Iran that Baghdad is going to ask Washington for permission to ignore some US sanctions on its neighbor, Iraqi government and central bank officials said.

US President Donald Trump withdrew the United States from an international deal aimed at limiting Iran’s nuclear program earlier this year and reimposed trade sanctions.

Washington has said there will be consequences for countries that do not respect the sanctions.

Baghdad is in a difficult position. Iraq imports crucial supplies from ally Iran but its other major ally is the United States, which provides security assistance and training.

The request would mark an important change in political tactics for Iraqi Prime Minister Haider al-Abadi. He initially said Baghdad would respect all the US sanctions but faced heavy criticism from rivals.

The officials told Reuters a delegation will travel to Washington to ask for exemptions in applying the sanctions. They did not say when that trip would take place.

“The government plans to ask Washington for a waiver. It’s going to happen soon,” one central bank official said.

An official in Abadi’s office declined to comment.

An official in the US State Department said it was discussing Iran policy with its partners around the world.

“We have given the same message to all countries around the world that the President has said, the United States is fully committed to enforcing all of our sanctions,” the official said.

“Iraq is a friend and important partner of the US and we are we are committed to ensuring Iraqi stability and prosperity.”

Iraqi officials fear shortages of key items if Baghdad complies with all the sanctions. This could lead to political turmoil at a delicate time in Iraqi politics.

Iraq imports a wide range of goods from Iran including food, agricultural products, home appliances, air conditioners and spare car parts. The goods element of Iranian imports to Iraq was about $6 billion for the 12 months ending March 2018, about 15 percent of Iraq’s total imports for 2017.

There are also energy contracts between the two countries contributing to a volume of trade of $12 billion last year.

The officials said they were asking each ministry to put together a list of imports that are essential for Iraq’s economy. Those items will make up the request for exemptions.

The US sanctions that came into effect earlier this month target Iran’s trade in gold and other precious metals, its purchases of US dollars and its car industry. Other sanctions will come into force in November.

Abadi has said Iraq will still respect the requirement on US dollar purchases, which is a major part of the sanctions and one of the most awkward for businesses, given energy and other big trade deals.

It means that Iraqi banks and the government cannot pay the Iranian government or Iranian entities in dollars.

The central bank circulated a warning to private banks to abide by the ban on dollar transactions but it will allow transactions in euros, one central bank official said.

The sanctions are particularly sensitive for companies with US operations. Trump has said that those who do business in Iran will not be able to do business in the United Sates.

But most Iraqi private companies will be relatively unharmed by the sanctions, said a Western diplomat in Baghdad.

“Plenty of Iraqi businesses don’t have US investments, don’t deal in dollars. Those can carry on dealing with Iran without issue,” he said.

It is government and public sector-run energy, construction and car industries, which will take a bigger hit, one Iraqi trade ministry official told Reuters.

“We rely mainly on Iran as a source of construction materials and automobiles, including spare parts, due to low prices and the ease of shipping through many joint border crossings,” he said.

Even if the government has committed to complying with some of the sanctions, it may be difficult to enforce.

Local traders may still be happy to deal with Iranian counterparts because the fall of the Iranian rial against the US dollar has made goods cheap and political and economic ties between the two countries are strong.

“It will be mission impossible for the government to prevent Iranian commodities from flowing across more than 1,300 kilometers of joint borders,” said Basim Antwan, a leading Iraqi economic consultant and member of the Iraqi Businessmen Union.

“Iran will use every single option at hand to keep the exports flowing, including the help of allied militia groups to secure what could be called ‘organized smuggling’.”

Some Western diplomats say Abadi must now come up with a compromise to balance US and Iranian interests.

“There is a fear that Washington will force Iraq into a ‘you are with us or against us’ situation,” the Western diplomat said. “They should not force Iraq to make that choice.”

Meanwhile, Iran said on Tuesday it had resumed supplies of electricity to Iraq and other neighboring states 10 days earlier, after shortages in Iraqi cities sparked unrest in July.

Tehran stopped supplying electricity to Iraq in July due to unpaid bills and because of a rise in Iranian consumption during the summer.

The power shortage in Iraq sparked protests in Basra and other cities, as people blamed what they called an inept and corrupt Iraqi government.

A number of protests have also broken out in Iran in recent months over regular power cuts and water shortages.