Settlement of Iraqi debt to Iran is likely to start in a month following an agreement signed by the two governments in March, the secretary general of the Iran-Iraq Joint Chamber of Commerce said.
"The Iraqi government has received permission for releasing Iran's blocked assets. This means it can repay its debts to Iran without worrying about [US] sanctions," Hamid Hosseini was quoted as saying by IRNA.
Earlier in February, Iraq’s Foreign Minister Fuad Hussein said his government had reached agreement on repaying its debts to Iran, which had been impeded by the economic blockade imposed by former US president, Donald Trump, in 2018.
Hosseini said the financial and banking sectors of the two neighbors had succeeded in removing a series of obstacles to settling the debts, noting that the process would begin soon.
Due to the economic and banking restrictions, mainly related to gas and electricity export to the Arab neighbor, billions in Iranian forex assets are blocked in that country.
In December, the National Iranian Gas Company said Iraq owed more than $ 6 billion. Debts include $2 billion in arrears and $1 billion in contract violations. Besides that $3 billion is blocked by the Trade Bank of Iraq.
According to Hosseini, TBI has started processing transactions for Iranian businesses using Iran's blocked assets.
He referred to a ten-point framework agreed by the two countries that "details the format for cooperation between Iranian and Iraqi companies."
"Iranian companies are to purchase goods in Iraq 90% of the value of which will be released when goods enter Iran and the balance when the goods are being unloaded," Hosseini said.
As per the agreement, transactions can be in euro, US dollar or Iraqi dinar, he said.
In order to use the money for settlement of their purchases, Iranian companies need to be introduced and verified by creditors, namely Iran Power Generation and Distribution Company (Tavanir) or the National Iranian Gas Company.
"The framework also outlines conditions for non-Iraqi companies to trade with Iran," he said. "Non-Iraqi entities must open an account with the Trade Bank of Iraq."
Non-oil trade between Iran and Iraq reached $7.58 billion in the last Iranian year (ended March 20). Iran exported $7.44 billion worth of non-oil goods while imports amounted to $133 million, according to data released by Iran Customs Administration.
Iraq's economy relies almost exclusively on oil revenue paid in dollars, which leaves Baghdad extremely vulnerable to punitive measures the US could take in response to violating the sanctions.
Iraq is the biggest importer of electricity from Iran. It needs more than 23,000 MW (per day) to meet growing domestic demand. Besides the electricity Iraq also depends on Iranian gas to generate power.
Iran has exported 65 billion kilowatt hours of electricity to Iraq since 2005 worth more than $ 6.2 billion. The neighbor also is one of biggest regional markets for Iranian exports.
An estimated 20 million cubic meters of gas is exported to the Arab neighbor every day (worth at least $200 million a month).
