Meanwhile, relations of Iran and Iraq as two neighbors with historical, cultural, and religious bonds in recent years have seen a remarkable boom. These relations not only have influenced trade but also energy, investment, financing, banking sector, and even infrastructural cooperation like transportation and transit corridors.
The positive and significant effects of strengthening this broad economic partnership on checking the US plots and political and economic pressures on the two countries have provoked Washington's leaders and strategists, at various times, to plan to sabotage and disrupt these relationship.
Now and after two months after Trump's comeback to the White House and resumption of the economic war against rivals especially the Islamic Republic of Iran, as expected, Iraq became the first point of focus where the anti-Iranian "maximum pressure" campaign is pursued. According to the US State Department, since Saturday, the US ended Iraq's waivers to buy Iranian electricity.
Iran-Iraq trade in 2024
Iran and Iraq are considered each other's main business partners, with Iraq being Iran's second largest economic partner.
According to the statistics, in the first 10 months of the current Persian year— from March to February 2024—Iran's non-oil exports to Iraq reached $10.650 billion. Given this trend, Iran's exports to Iraq are expected to touch $13 billion by end of the Persian year. This figure a considerable growth compared to the year before.
Iraq, with foreign currency reserves of about $85 billion, gold reserves of more than 130 tons, proven oil reserves of 147 billion barrels, and a large consumer population of 45 million that requires imports in almost all economic sectors, including agriculture and food, pharmaceuticals, industrial machinery, minerals, petrochemicals, and construction materials, and the service sector, is a very attractive market for its economic partners. Meanwhile, Iran, with its historical relations, cultural affinity, political alliance, and the longest land borders with this country, has a comparative advantage in this regard.
One of the main export items of Iran to Iraq is natural gas. In the first quarter of this Persian year— from March to June 2024— Iran's gas supplies to Iraq reached worth of $1.210 billion. Iraq also imports power from Iran.
Iraq's electricity imports from Iran are also about 1,200 megawatts, but in 2023 this amount had decreased to 625 megawatts due to Iran's domestic needs, supplying only about 4 percent of Iraq's electricity consumption.
Iron and steel bars with $176 million and tiles and ceramics with $55 million are in the next ranks of Iranian items exported to Iraq.
In the current Persian year, Iran and Iraq have signed several agreements in various fields to bolster economic cooperation and increase trade volume. These agreements include the development of energy infrastructure, increasing trade exchanges, banking and financial cooperation, and facilitating customs procedures. They target $40 billion trade level for the near future.
Impacts of ending American waivers on Iran-Iraq trade
On March 9, Trump administration ended waivers from sanctions for Iraq that allowed Baghdad to buy electricity and gas from Iran. This move can leave negative impacts on the relations between Tehran and Baghdad and set up challenges to the Iraqi government since Iraq is dependent on Iran energy supplies and the economic, security, and political advantages of meeting energy needs through Iran have led to the failure of all plans by Washington and its regional allies to eliminate Baghdad's need for energy imports from Iran.
I addition to energy, Iranian consumer goods have a key position in Iraqi market due to geographic closeness, lower price, and diversity. Even during peak of sanctions, Iranian products kept flowing to Iraqi market.
Therefore, the cancellation of exemption from sanctions for Iraq may lead to energy shortage in Iraq and build economic and social pressures.
Accordingly, in recent days, the new US moves have caused concern among Iraqi government officials, as Atwan Al-Atwani, head of the Finance Commission of the Iraqi Parliament, announced that in a meeting with the US Embassy chargé d'affaires he asserted Baghdad's opposition to this measure since stopping gas imports will have catastrophic consequences for the Iraqi people, especially in the summer, as this issue will lead to the collapse of the national electricity system, given the current lack of alternatives.
He further called on the US to review the ongoing sanctions imposed on Iraqi banks in line with the pressure policy that the US Treasury is applying on the Iraqi financial and banking sector.
In the meantime, a very important issue is the impact of US political pressure and sanctions on monetary and banking transactions between the two countries, which has caused Iraq to be unable to pay for energy imported from Iran in recent years and has accumulated a debt of several billion dollars. The exact amount of this debt is not known, but some speculations have put Iraq's gas debt to Iran since last year at $9-11 billion.
Since 2003, according to a UN Security Council resolution, Iraqi oil revenues were began to be deposited in a special account named Development Fund for Iraq in US Federal Reserve in New York. The amounts are sent for Iraqi government payments after each item being okeyed by the US. This process paved the way for the US financial dominance and lasting Iraqi monetary dependence on the US, giving Washington an effective pressure lever to force Baghdad to comply with its policies. A clear example is the Iraqi failure to settle Iranian depts for gas and electricity imports despite friendly and warm relations with Tehran.
To sustain and strengthen these ties, the two countries must boost bilateral cooperation— especially in banking transactions using local currencies, barter agreements (which now account for over 35 percent of the global economy), diversifying trade, and reducing reliance on foreign factors especially the US dollar—so they can move forward together toward shared goals.
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