The Trump administration is granting Iraq a renewed 90-day waiver, exempting it from U.S. sanctions on Iran, a State Department official told CNBC Tuesday.
The waiver, last issued in December and expired Tuesday, will allow Iraq to continue buying electricity from its neighbor, Kallanish Energy reports.
“While this waiver is intended to help Iraq mitigate energy shortages, we continue to discuss our Iran-related sanctions with our partners in Iraq,” the official told CNBC on condition of anonymity.
War & lack of investment cripples Iraq
Despite being Opec’s second-largest oil producer, years of war and lack of investment have left Iraq dependent on Iranian natural gas plants for up to 45% of its electricity.
The Trump administration reinstated sanctions on Iran last year after exiting the Joint Comprehensive Plan of Action, which lifted economic restrictions on Iran in exchange for curbs to its nuclear program.
Iraq could lose 33% of its power overnight
Iraq is a special case, putting the administration in an awkward position as putting too much pressure on Iran — Baghdad’s third-largest trading partner — could lead to destabilization in Iraq. Iraq imports some 28 million cubic meters per day of Iranian natural gas, which powers up to 1 million Iraqi homes, but the country still faces severe power shortages thanks to its outdated power infrastructure and frequent failure to pay its bills.
Without continued sanctions exemptions, Iraq could lose more than 33% of its power overnight, energy analysts say.
The U.S. government is encouraging greater Iraqi energy independence as a more sustainable means of blunting Iran’s clout in Iraq, which extends from energy provision to trade, security and politics. This has so far come in the form of deals with American energy companies like General Electric to upgrade the Iraqi grid and generate power by capturing flared natural gas.
“We are continuing to work with Iraq to end its dependence on Iranian natural gas and electricity and increase its energy independence,” the State Department official told CNBC.
“Expanding the use of Iraq’s own natural resources and diversifying energy imports away from Iran will strengthen Iraq’s economy and development as well as encourage a united, democratic, and prosperous Iraq free from malign Iranian influence.”
Energy self-sufficiency years away
Still, experts say achieving energy self-sufficiency for Iraq will likely take years, and that continued sanctions waivers may be the reality for the foreseeable future.
The U.S. decision comes just a week after Iranian President Hassan Rouhani’s first official visit to Iraq, which saw more than a dozen treaties signed to expand trade and infrastructure ties between the two countries.
This post appeared first on Kallanish Energy News.