The Iraqi Government Has Provided 'Fuel Oil' to Settle Part of Its Debt to Iran

The Iraqi government, due to US sanctions against Iran that hinder Baghdad's repayment of its debts to Tehran, has delivered quantities of fuel oil to traders introduced by the Islamic Republic in an effort to compensate for part of this debt. According to reports from specialized oil and gas media in the region, this type of exchange has recently been used by Iraq as a strategy to reduce Baghdad's debt burden to Tehran. Two senior officials in the Iraqi Ministry of Oil, familiar with these transactions, told the 'Iraq Oil Report' website in Baghdad that the government of Prime Minister Mohammed Shia' al-Sudani has recently delivered 190,000 barrels of fuel oil (mazut) daily to traders associated with the Islamic Republic of Iran. These sources considered such transfers to be based on a contract between the two governments. The names of the Iranian-associated traders receiving the fuel oil were not mentioned in the reports. One source stated that the Baghdad government cannot directly pay Iran for its previous debts due to sanctions against Iran. Iraq has been indebted to Tehran for the past decade, partly due to receiving electricity and gas from Iran. The Iraqi government announced in the last week of spring last year that it would pay $2.76 billion of its debt. Foad Hussein, the Iraqi Foreign Minister, who met with his American counterpart Antony Blinken at a conference in Riyadh in June 2023, stated that Baghdad had received a 'waiver' from Washington to pay this amount of debt to Iran. However, it remains unclear whether that money was paid or not. Meanwhile, Yahya Al-Ishaq, head of the Iran-Iraq Chamber of Commerce, told Tehran media that part of the blocked Iranian funds in Iraq was allocated for 'pilgrims' and part was used for essential goods. The Washington-based 'Foundation for Defense of Democracies' estimated Iraq's debt to Iran to be up to $11 billion a year and a half ago. Instead of paying cash for the gas received from Iran, Iraq is delivering 'black oil'. With the rise of Masoud Pezeshkian's government in June this year, Tehran's economic media reported that some experts suggested he should allow the private sector more freedom to settle debts from Iraq, rather than relying solely on government-to-government contracts. On the other hand, some experts in Tehran referred to 'bitter experiences' from the past, including with China, which did not guarantee the collection of Iran's debts. The budget bill for this year and next year also stipulates that institutions in the Islamic Revolutionary Guard Corps and other government organizations will play a role in the export of oil and gas and transactions of this nature. In this context, Western and Iranian officials told Reuters last month that the IRGC has increased its influence over Iran's oil exports, estimating that it controls half of them. Iran needs $45 billion for the development of gas industries and their infrastructure. Meanwhile, the specialized site 'Oil Price' reported on Thursday, January 3, citing a ship tracking company, that Iran's crude oil exports increased again in the second half of December, while they had decreased in the two months prior. It is unclear whether the significant reduction in oil shipments from Iran in the two months of autumn was due to Middle Eastern tensions or if China had begun to reduce its oil purchases from Iran following Donald Trump's victory in the US elections. Conversely, data from Turkey's energy market regulatory authority has shown that despite the internal gas crisis, Iran has increased its gas exports to Turkey in hopes of generating revenue. The Oil Price report indicates that Iran's gas exports to this western neighbor were eleven times higher in the autumn season compared to the same period last year. This comes as Iran has faced a significant gas shortage for domestic consumption since the beginning of autumn, leading to a substantial reduction in fuel supply to industries, agriculture, and power plants, disrupting life and production in Iran. The oil minister in Masoud Pezeshkian's government confirmed on January 1 that gas production should have reached 1.38 billion cubic meters per day, but this goal was not achieved. He stated that the country needs $45 billion in investment to develop gas fields and their infrastructure. While the Biden administration had considered some sanctions waivers for Iran, the prospect of Donald Trump's return to the White House has reopened the outlook for intensified sanctions against Iran.