US Secretary of State Mike Pompeo visited Iraq in May amid increasing tensions between Washington and Tehran. (AP)

June 7, 2019

Iranian and US officials are in the early stages of negotiating an agreement to allow Tehran to sell limited quantities of oil in exchange for goods, Iraqi sources have told Arab News.

Iraq will be the transit point for both the oil exports and the import of goods, according to officials in Baghdad familiar with the talks.

Washington’s stated policy is for sanctions to reduce Iranian oil exports to zero, and US government sources denied to Arab News that there was a deal to permit limited sales. However, a senior Iraqi official familiar with what he described as “ongoing talks” said the deal was “a goodwill gesture offered by the Americans to calm the escalation between the two countries, although it is still in its preliminary stages.”

Iran arms, equips and controls dozens of armed factions in Iraq, Syria, Lebanon and Yemen, whose activities are a serious threat to the US and its allies in the region. One of the aims of US economic sanctions is to prevent Tehran from funding these groups.

“The main goal that the Americans are looking to achieve is preventing the Iranians from obtaining any cash,” a second Iraqi official familiar with the talks told Arab News.

“The deal will allow the Americans to monitor and control everything, the amount of Iranian crude oil exported and the kind of goods imported, and be sure that no cash is paid.

“This will paralyze the Iranians and force them to abandon the armed factions they fund and will keep them busy dealing with the internal Iranian situation.”

The initial deal is thought to have been concluded by Bijan Zanganeh, the Iranian minister of oil, on an unannounced visit to Iraq a month ago.  It is not yet final because details such as the amount of oil to be sold, the main buyer and the kind of goods to be imported are still under discussion.

“The Iranians suggested one of the European countries as a key buyer for the oil but the Americans refused,” a source familiar with the talks told Arab News.

“The confirmed thing so far is that Iraq will be the transit area for the exchange operations, so the US can closely monitor the commitment of the Iranians.”

The agreement is based on the UN oil-for-food program implemented in Iraq in 1995. The program allowed Iraq to sell oil in exchange for food, medicine, and other humanitarian needs under UN supervision without obtaining funds to boost its military.

“The targeted shape of the suggested deal is almost a copy of the oil-for-food program, but Iraq will replace the UN as the supervisor of procurement and receipt and disbursement of funds,” a prominent Shiite leader and a member of Iraq’s oil and power parliamentary committee familiar with the talks told Arab News.

“The proposal is to open a bank account in the Iraqi Central Bank in favor of Iran to deposit the money obtained from the sale of Iranian oil, and then for Iraq to pay for Iranian purchases later, using this money.

Monitoring

“This mechanism will enable the Americans to follow the money closely and monitor Iran’s disbursements.”

Another member of the oil and power parliamentary committee said: “The opening of the bank account, the receipt of the oil money and the payment of the invoices for Iran’s purchases are among the points agreed upon.”

A prominent Shiite leader familiar with the deal told Arab News it also included maintaining all the pre-sanctions contracts that Iran signed with European, Chinese and other Asian companies to provide medical supplies and spare parts for the oil industry. Iraq will financially cover these contracts from the money in the proposed Iranian account.

The deal would also solve another issue. Iraq imported 1,100MW of electricity per day from Iran for many years, in addition to 28 million cubic meters of gas that generates a further 4,000MW.

Supplies ceased last summer because Iraq was unable to pay as a result of US financial sanctions on Iran. The subsequent power shortages led to violent demonstrations in the Shiite-dominated provinces in southern Iraq. At least 17 people were killed, including members of the security forces, and government and party offices, including the Iranian Consulate, were burned.

Arab News

About Track Persia

Track PersiaTrack Persia is a Platform run by dedicated analysts who spend much of their time researching the Middle East, in due process we fall upon many indications of growing expansionary ambitions on the part of Iran in the MENA region and the wider Islamic world. These ambitions commonly increase tensions and undermine stability.