Now Iraq says it has found a way around sanctions: Paying Iran for gas with Iraqi oil. The agreement injects uncertainty into the Biden administration’s attempts to cool tensions with Iran and contain its nuclear program.

Iraqi Prime Minister Mohammed al-Sudani announced the barter arrangement this week after Iran cut gas supplies late last month over unpaid debts, plunging Iraq into blackouts and electricity shortages just as summer temperatures in the country’s south began breaching 120 degrees. Iran’s natural gas helps provide more than half of Iraq’s power needs during peak summer months.

Iran has since resumed supplying gas, and Sudani—who has had generally good relations with the Biden administration since taking office in October—blamed the U.S. for the electricity crisis.

“We could not get approval to transfer all the dues,” Sudani said.

Biden administration officials said they were seeking more details about how the oil-for-gas trades would work in practice and whether the system would violate U.S. sanctions. They rejected assertions by Sudani and other Iraqi officials that Iraq’s electricity shortages were caused by U.S. delays in approving Baghdad’s payments to Tehran.

“Any claim that U.S. sanctions on Iran are causing Iran to limit gas supplies to Iraq is absurd. Iran is limiting gas supplies to pressure and blackmail the Iraqi government and its people,” a spokesman for the National Security Council said, adding, “We are looking into the details of the reported swap.”

U.S. officials use their de facto control over Iraq’s payments to Iran as a way to deny Tehran hard currency, but the new procedure announced by Sudani’s government appears to offer Iran a way to sidestep those limits if it can refine and resell the oil it receives from Iraq on world markets.

For nearly a decade Iraq has sought U.S. Treasury Department approval before releasing energy payments to Iran in order to comply with sanctions, a procedure aimed at preventing dollars from going to Iran’s Revolutionary Guard, a military organization designated as a terrorist group. Iran has generally been limited to buying humanitarian goods and only in non-U.S. currency.

Since last December, the U.S. has approved €2.5 billion, equivalent to $2.7 billion, in payments by the Iraqi government to Iranian creditors. The payments included €886 million to Turkmenistan, partially repaying a debt owed by Iran, the officials said, for example.

The payments came at the same time as the Biden administration restarted indirect talks with Iran over freezing progress in its nuclear program and freeing U.S. prisoners in exchange for releasing billions of dollars in Iranian funds frozen overseas. The goal is to reduce tensions that have soared as Iran has provided drones to Russia for its war in Ukraine, pushed ahead with uranium enrichment and seized oil tankers in the Persian Gulf.

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https://www.wsj.com/articles/iraq-tests-u-s-sanctions-with-oil-for-gas-deal-with-iran-c318b917