On November 16th, Iran and Iraq agreed on the establishment of a free trade zone, according to Iranian President Hassan Rouhani.
“We have agreed to create a free trade zone between the two countries, which will enable us to launch joint ventures,” Rouhani said at a press conference held after the meeting, as broadcast by Press TV.
According to Rouhani, currently Iran-Iraq trade amounts to approximately $12 billion, but with some effort could grow to $20 billion.
Rouhani also said that the two leaders also talked about electricity and gas swap, as well as cooperation on petroleum products and oil exploration.
During the joint press conference Salih declared that the relationship between the two neighboring countries is a “fixed principle” that is “rooted in shared history, faith and geography.”
“We care about our relationship with Iran,” Salih declared. However, he did not give full details about the free-trade zone.
All of this follows a meeting between Rouhani and Iraqi President Barham Salih in Tehran, during which they discussed bilateral cooperation and regional development.
Reports also claimed that the two leaders discussed building a 35km railway linking the two countries.
Reuters also cited Iraqi officials who claimed that Iraq had agreed to sell foodstuffs in return for Iranian gas and energy supplies. Iranian trade officials denied that any food-for-gas scheme could be set up as Iran was a net exporter of food to Iraq.
“The opposite is correct, since Iran provides foodstuffs to Iraq… We have exported more than $6 billion to Iraq in the past seven months and we could import goods for that amount but not food items,” Yahya Al-e Eshaq, head of the Iran-Iraq chamber of commerce, was cited as saying.
Iran is one of Iraq’s closest allies and third biggest trade partner. Expectedly, the introduction of sanctions on Iran, following the US withdrawal from 2015 Iran Nuclear Deal could deal a heavy blow on Iraq, both politically and economically.
The current Iraqi parliament is mostly comprised of parties that have a positive or neutral view of Iran and the country’s relations with it. In addition to that, the PMU (Popular Mobilization Units) plays a key role in Iraq’s security, and according to the US they’re “Iranian proxies.”
Thus, somewhat expectedly after the reintroduction of the US sanctions targeting Iran’s energy sector and oil exports, Iraq was granted a waiver.
On November 11th, Iraq was granted a 45-day waiver to continue to import natural gas and energy supplies from the Islamic Republic.
“The United States has given Iraq a temporary relief from the sanctions for 45 days to continue purchasing natural gas and electricity from Iran,” the U.S. Embassy in Iraq said in a video.
“This relief gives Iraq time to start taking steps towards energy independence,” the video said. The temporary waiver is conditional on Iraq not paying Iran for imports in US dollars.
In all, initially only eight countries were allowed waivers: Japan, China, India, Italy, Greece, South Korea, Taiwan and Turkey. Pompeo said those countries received temporary waivers “in response to specific circumstances and to ensure a well-supplied oil market.” Furthermore, waivers were included for humanitarian needs, also three of Iran’s civilian nuclear facilities were excluded from the sanctions.
This move angered Saudi Arabia, which threatened to cut output with OPEC and its allies by about 1.4 million barrels per day, or 1.5%, of global supply. According to the Kingdom, the generous waivers are threatening oversupply.
“The Saudis are very angry at Trump. They don’t trust him anymore and feel very strongly about a cut. They had no heads-up about the waivers,” said one anonymous senior source briefed on Saudi energy policies, cited by Reuters.
The EU’s high commissioner and the finance and foreign ministers from the U.K., Germany and France said they “deeply regret the further re-imposition of sanctions by the United States.” They said they will work “to protect European economic operators engaged in legitimate business with Iran,” including preserving “effective financial channels” and continuing “Iran’s export of oil and gas.”
Thus, the US sanctions are in place, however waivers were given to Iran’s biggest trade partners. It is also quite unlikely that Iraq will stop its oil and natural gas exports from the Islamic Republic. Despite that, it would also be a surprise if the US sanctions Iraq for its continued trade with Iran past the 45-day waiver. If it does, the US should be prepared to lose another “formal” ally in the region.