Iran has received $1.6 billion for its gas export arrears from Iraq, Iran’s Oil Minister Javad Owji said on Wednesday.
The repayment, which is related to 2020, has been done after months of negotiations, the Oil Ministry’s news agency Shana reported Owji as saying.
“Since the beginning of the year [March 21], the country's gas export volume to neighboring countries has increased by 25% and hard currency earnings by 90% compared to last year,” he added.
Iraq is paying its overdue money to Iran, which were hindered due to the US sanctions on Iran, following several high-level meetings between the two countries in the past months.
According to officials, more than $5 billion in funds remain frozen in Iraq from gas and electricity exports as a result of US sanctions that have for years prevented Iran from accessing its assets in several countries, including Iraq.
Iraq is paying the Iranian gas debts to prevent a decline in gas flow to the country.
Last week, the Iraqi Parliament passed an emergency finance bill for "food security and development" – totaling 25 trillion Iraqi dinars ($17 billion) – to pay debts to Iran to ensure gas supplies and stop worsening power cuts. Of that, $2.6 billion are to be allocated to settling Iraq's gas and electricity debts, as well as for buying further energy supplies from abroad.
Despite its immense oil and gas reserves, Iraq remains dependent on imports to meet energy needs, especially from neighboring Iran that currently provides a third of Iraq's gas and electricity needs.
However, supplies are regularly cut or reduced, aggravating shortages caused by daily load shedding.
Iran had demanded Iraq pay $1.6 billion it owed for gas imports by the start of June to guarantee further supplies.
Payment of the debt is a key requirement to ensure energy supplies for power plants as Iraq experiences the intense summer heat, when temperatures soar to over 50 degrees Celsius.
Electricity demand surges as people seek to keep cool. But before the payment, Iran had sharply reduced its gas exports.
According to the officials, Iraq needs to import 50 million cubic meters of Iranian gas per day during this summer and up to 20 million cubic meters a day in winter.
Biggest Power Importer
Iraq is the biggest importer of Iranian electricity for more than a decade. It needs more than 23,000 megawatts of electricity for domestic demand but decades of war, civil strife and terror attacks have destroyed its power infrastructure.
Iraq has a 7,000-MW power deficit and large parts of the country have for years struggled with systematic blackouts of several hours a day. The power shortages in part have often led to violent public protests.
Annual power generation in Iran is 77,000 megawatts and average annual export reaches 10,000 MW-hours to three neighbors: Iraq, Pakistan and Afghanistan.
In the past, Iran cut power supplies to Iraq in 2015 and 2017 because of unpaid bills. But exports returned to normal several weeks later after Baghdad pleaded with Tehran to resume supplies and said the dues would be settled.
The country depends on Iranian gas to feed three power plants — Rumaila, Shatt al-Basra and al-Najibiyah — to partially offset the blackouts.
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.
Based on a deal signed between the two countries in 2019, Iran agreed to boost cooperation in power production and export, as well as sharing power industry knowhow and technology.
Based on the agreement, Tehran would help rebuild the war-stricken country's power infrastructure and human resources. Plans included the construction of a power plant, modernization of old plants and reduction of power grid losses in Iraq by Iran’s state and private companies.
According to Iraqi officials, there is no better alternative that can compete in terms of volume, price and speed of delivery compared to what Iran offers.
