Iraq relies heavily on Iranian natural gas for power generation. The US administration had previously granted waivers protecting Baghdad from any penalty to avoid plunging the country into crisis on condition the government moved to wean itself off Iranian energy, according to The Wall Street Journal.
But relations between the two allies reached a low after the US in January killed a prominent Iranian commander on Iraqi soil, mobilizing opposition to the American troop presence in the country. Iraq’s parliament voted in favor of expelling US troops, prompting the US to threaten sanctions if forced to leave.
Some US officials suggested not extending Iraq’s exemption after the last one – renewed in October for 120 days – expires next week, according to US officials.
“We want to maintain maximum pressure on Iran,” said a US official focused on Iran. “But it should not be at the expense of the economic stability of its neighbors.”
Ending the waivers could expose Iraq to sanctions and disrupt electricity generation, compounding challenges to the new government as it faces a four-month-old protest.
Tensions between the US and Iraq appeared to ease slightly after Baghdad last week said it was resuming joint operations with the US-led coalition against the Daesh terrorist group – suspended earlier in January – until a new relationship is worked out.
Prime Minister Adel Abdul-Mahdi, who remains in office in a caretaker capacity after resigning in December, has left it to the country’s next prime minister, Mohammed Tawfiq Allawi, to decide on the presence of US troops.
Allawi won’t become prime minister unless parliament passes his cabinet, which he must submit to a vote by early next month. Among the many challenges Allawi would face is determining the shape and size of the American troop presence.
“They [US] want to give him the benefit of the doubt,” said a senior Iraqi official.
Iraqi officials said US counterparts had warned they could reverse their decision to extend the waiver if any American personnel in Iraq are harmed before it expires next week. Bases where US troops are stationed as well as the American Embassy in Baghdad have come under repeated rocket fire in recent months. Iraq burns large amounts of gas because it doesn’t have the infrastructure to process it.
In May 2018, the US administration abandoned the 2015 Iran nuclear deal and reimposed sanctions on Iran's energy and finance sectors in November 2018 as part of its “maximum pressure” campaign aimed at forcing it to renegotiate a new deal.
The sanctions have negatively impacted the economy of Iran and many countries in the region, including Iraq.
Gas imports from Iran generate as much as 45 percent of Iraq's 14,000 megawatts of electricity consumed daily. Iran transmits another 1,000 megawatts directly, making itself an indispensable energy source for its Arab neighbor.
Iraq and Iran share a 1,400-kilometer-long border. For their run-of-the-mill maintenance, Iraqis depend on Iranian companies for many things from food to machinery, electricity, natural gas, fruits, and vegetables.
The administration of US President Donald Trump is pressing Iraq to stop buying natural gas and electricity from Iran or at least show signs that it is reducing the imports. The US has also urged Iraq to establish contracts with US companies.