Iraq Buying Iran Gas, But Not Paying

EghtesadOnline: Oil Minister Bijan Namdar Zanganeh says Iraq does not pay for Iranian natural gas imports.

News ID: ۷۴۹۵۵۵

27 January 2020

“They (Iraqis) do not pay us (Oil Ministry) any money for the gas they import,” Zanganeh was quoted as saying by ILNA Sunday.

An estimated 20 million cubic meters of gas is exported to the Arab neighbor every day (worth at least $200 million per month). Nonetheless, Iraq does not settle the debts that have been piling up, Financial Tribune reported.

“Iraqis put the blame on Iran’s sanctions and banking restrictions imposed by the US (started in 2018) that has almost made it impossible to transfer money through normal financial channels,” Zanganeh had said earlier.

Referring to upsurge in domestic gas consumption (due to the cold weather) that has surpassed 600 mcm/d, Zanganeh said gas flow to Turkey (30 mcm/d) has not been disrupted.

“Gas exports to Iraq (used in thermal power plants) has declined due to technical problems (and not due to unsettled debts).”

The last time the neighboring country cleared a part of its massive debt was in February 2019 when it paid $2 billion and after none of the bills have been paid.

In March 2019, governor of the Central Bank of Iran, Abdolnaser Hemmati, said Iran’s (gas and electricity) export to Iraq would exceed $4 billion by March 2020.

Electricity Import

According to a former spokesman for the Iran Power Generation, Distribution and Transmission Company (Tavanir), Mahmoud Reza Haqifam, Iraq's debt to Iran for electricity imports is around $1 billion.

Iraq is the biggest importer of Iranian electricity for more than a decade. It needs more than 23,000 megawatts of electricity for domestic demand but decades of war, civil strife and terror attacks have destroyed its power infrastructure.

Iraq has a 7,000 MW power deficit and large parts of the country have for years struggled with systematic blackouts of several hours a day. The power shortages in part have often led to violent public protests.

Annual power generation in Iran is 77,000 megawatt and average annual export reaches 10,000 MW hours to three neighbors: Iraq, Pakistan and Afghanistan.

In the past Iran cut power supplies to Iraq in 2015 and 2017 because of unpaid bills. But exports returned to normal several weeks later after Baghdad pleaded with Tehran to resume supplies and said the dues would be settled.

The country depends on Iranian gas to feed three power plants—Rumaila, Shatt al-Basra and al-Najibiyah — to partially offset the blackouts.

Processing Payments

Although (according to Zanganeh) Iraq does clear its debts, the bank through which Iraq pays for the gas imports said last week it would stop processing payments if a crucial US sanctions exemption expires next month.

"We will stop. As simple as that," the head of Trade Bank of Iraq (TBI) Faisal al-Haimus told AFP, but he seemingly forgot to recall that Baghdad had not settled any of its debts in the past 12 months.

Washington imposed sanctions on Iran's energy sector in late 2018 but has granted Iraq a series of temporary waivers over the last 15 months to allow it to buy gas from Tehran.

Iraq fears being swept up in the spiraling tensions between Iran and the US, both of them allies to Baghdad.

Earlier this month, Iraq's parliament voted in favor of ousting foreign troops -- including some 5,200 US forces -- following a US drone strike near Baghdad airport that killed top Iranian and Iraqi military officials.

Outraged by the vote, US President Donald Trump threatened to impose sanctions "like they've never seen before" on Iraq if US troops were forced out.

The US then informed Iraq that it was considering blocking Baghdad's access to a US-based account where Iraq keeps oil revenues that contribute 90% of the national budget.

Given the arrogant and sanction obsessed attitude of past and present White House occupants vis-à-vis foreign nations and governments, especially in major financial issues, it is not clear why Iraqi leaders decided to keep their oil export revenues in American banks.