Iraq to sidestep US sanctions on Iranian energy with new financial mechanism

Iraq is establishing a new financial system to sidestep United States sanctions so that it will be able to continue purchasing Iranian gas and electricity.

US President Donald Trump reimposed sanctions on Iran’s energy and finance sectors last November following a decision to withdrawal from a landmark 2015 nuclear deal between major powers and Tehran.

The Iraqi mechanism is said to be similar to Europe’s Instex, a system that will help Iran purchase food and medicine, the two items not covered by US sanctions on Tehran, according to AFP.

Iraqi officials confirmed that talks have been going on for months to establish a “special purpose vehicle” that would allow Baghdad to pay for imported Iranian energy in Iraqi dinars.

"The Iraqi government will continue to pay Iran for gas by depositing money into a special bank account inside Iraq, in Iraqi dinars," the official told AFP.

Baghdad has informed Washington about their deal with Tehran.

The development comes as tensions between Iraq's two closest allies have recently escalated following a several attacks on tankers in the Arabian Gulf and on Saudi Arabia's oil industry, which Washington has blamed on Tehran.

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The US has recently extended a sanction wavier for Iraq, enabling Baghdad to import natural gas from its neighbouring state for another three months.

Iranian energy imports are vital to Iraq, which faces chronic blackouts that often leave homes without power for up to 20 hours a day.

Iraq's dependence on Iranian energy is uncomfortable for Washington, which sees Tehran as its top regional foe.

Last summer, Iraq had mass protests over power outages and a lack of water, which have started to kick off again this year as summer temperatures have already surpassed seasonal averages.

Iraqi Prime Minister Adel Abdul Mahdi and Saudi Arabia’s King Salman discussed co-ordination over stabilising oil prices in a phone call on Monday.

“The talks were primarily over the brotherly countries co-operating in the Opec conference for oil … and to achieve oil price stability in the coming period,” Mr Abdul Mahdi’s office said in a statement.

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