Iraq gets US sanctions break to keep the lights on

An Iraqi man checks the wiring of an electric generator supplying homes with electricity in Baghdad. (AFP)
Updated 08 November 2018
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Iraq gets US sanctions break to keep the lights on

  • Iraq relies on Iran for electricity and consumer goods
  • Baghdad has been hit by repeated power cuts

BAGHDAD: Iraq has won an exemption allowing it to buy Iranian electricity despite US sanctions, as the country plagued by chronic power shortages walks a tightrope between rivals Washington and Tehran.
With US measures imposed Monday taking aim at Iran’s banking and energy industries, there were concerns Iraq — which heavily relies on its eastern neighbor for electricity and consumer goods — would be caught in the crossfire.
But Baghdad has managed to secure an exception.
“We granted Iraq a waiver to allow it to continue to pay for its electricity imports from Iran,” Brian Hook, the State Department’s representative on Iran, announced Wednesday.
Iraq would be expected to show the US how it would wean itself off Iranian gas, a well-informed source told AFP.
“The US gave us 45 days to give them a plan on how we will gradually stop using Iranian gas and oil,” the source said.
“We told them it may take us up to four years to either become self-sufficient or find another alternative.”
The exemption came after talks between Iraqi and US officials, including from the White House and Treasury, the source said.
Iraqi government representatives have shuffled between American and Iranian officials for months in a bid to insulate their fragile economy from escalating tensions.
This week, Prime Minister Adel Abdel-Mahdi said Baghdad was in talks with both sides to protect its interests.
“Iraq is not a part of the sanctions regime. It talks to everyone, and does not want to get involved in a conflict that it’s not a part of,” he told reporters Tuesday.
Baghdad has a strong relationship with the US, coordinating on security, politics, and governance.
But its economy is profoundly intertwined with that of Iran.
Gutted by the international embargo of the 1990s and the US-led invasion of 2003, Iraq’s industries produce little.
Instead, its markets are flooded with Iranian goods — from canned food and yoghurt to carpets and cars.
These non-hydrocarbon imports amounted to some $6 billion in 2017, making Iran the second-largest source of imported goods in Iraq.
Perhaps most consequential for Iraq’s 39 million people is their dependency on Iran for electricity.
Chronic cuts, which often leave homes powerless for up to 20 hours a day, were a key driving factor behind weeks of massive protests in Iraq this summer.
To cope with shortages, Baghdad pipes in natural gas from Tehran for its plants and also directly buys 1,300 MW of Iranian-generated electricity.
That reliance is uncomfortable for the US, whose quest to diminish Tehran’s influence prompted it to reimpose sanctions on Iranian financial institutions, shipping lines, energy, and petroleum products on Monday.
Eight countries would be temporarily allowed to import Iranian crude oil.
Iraq’s special exemption appears to have come with a condition that it lay out how it would stop using Iranian electricity, said Nussaibah Younes, a senior adviser for the European Institute of Peace.
“In order to get this exemption, the Iraqis had given some sort of roadmap idea,” Younes told AFP.
One way would be capturing the gas set alight when Iraq extracts oil, which according to the World Bank represents an annual loss of about $2.5 billion — enough to fill the gap in Iraq’s gas-based power generation.
American firms may help fill the vacuum left by Iran.
In January, Iraq signed a memorandum of understanding with US energy company Orion on gas exploits at a southern oil field.
And in October, Iraq signed a memo with the US’s General Electric to revamp the electricity sector, after signing a similar agreement with Germany’s Siemens.
The source told AFP that GE was among several US companies proposed to Baghdad during negotiations with the US.
But Iraq has had to simultaneously reassure Iran, in part by granting it an outlet to circumvent US sanctions.
“The focus for the Iranians is informal sanctions-busting activity in Iraq, including accessing hard currency through Iraqi exchanges and through smuggling operations,” said Younes.
Baghdad, she expected, would likely “turn a blind eye.”
Iraq has simultaneously been granting Iranian officials more time for face-to-face meetings, including its ambassador in Baghdad, Araj Masjadi.
He met with new Finance Minister Fuad Hussein and Electricity Minister Luay Al-Khateeb on Wednesday, pledging close cooperation on the power sector in the future.
For Masjadi, the meetings appeared to be a reminder of Tehran’s entrenched role in Iraq.
“We need Iraq the way Iraq needs us,” said Masjadi.


Palestinians in financial crisis after Israel, US moves

Updated 19 min 25 sec ago
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Palestinians in financial crisis after Israel, US moves

  • A Ramallah-based economics professor said the Palestinian economy more generally, remain totally controlled by and reliant on Israel
  • Israeli-Palestinian peace efforts have been at a standstill since 2014

RAMALLAH, Palestinian Territories: The Palestinian Authority faces a suffocating financial crisis after deep US aid cuts and an Israeli move to withhold tax transfers, sparking fears for the stability of the West Bank.
The authority, headed by President Mahmud Abbas, announced a package of emergency measures on March 10, including halving the salaries of many civil servants.
The United States has cut more than $500 million in Palestinian aid in the last year, though only a fraction of that went directly to the PA.
The PA has decided to refuse what little US aid remains on offer for fear of civil suits under new legislation passed by Congress.
Israel has also announced it intends to deduct around $10 million a month in taxes it collects for the PA in a dispute over payments to the families of prisoners in Israeli jails.
In response, Abbas has refused to receive any funds at all, labelling the Israeli reductions theft.
That will leave his government with a monthly shortfall of around $190 million for the length of the crisis.
The money makes up more than 50 percent of the PA’s monthly revenues, with other funds coming from local taxes and foreign aid.

While the impact of the cuts is still being assessed, analysts fear it could affect the stability of the occupied West Bank.
“If the economic situation remains so difficult and the PA is unable to pay salaries and provide services, in addition to continuing (Israeli) settlement expansion it will lead to an explosion,” political analyst Jihad Harb said.
Abbas cut off relations with the US administration after President Donald Trump declared the disputed city of Jerusalem Israel’s capital in December 2017.
The right-wing Israeli government, strongly backed by the US, has since sought to squeeze Abbas.
After a deadly anti-Israeli attack last month, Prime Minister Benjamin Netanyahu said he would withhold $138 million (123 million euros) in Palestinian revenues over the course of a year.
Israel collects around $190 million a month in customs duties levied on goods destined for Palestinian markets that transit through its ports, and then transfers the money to the PA.
Israel said the amount it intended to withhold was equal to what is paid by the PA to the families of prisoners, or prisoners themselves, jailed for attacks on Israelis last year.
Many Palestinians view prisoners and those killed while carrying out attacks as heroes of the fight against Israeli occupation.
Israel says the payments encourage further violence.
Abbas recently accused Netanyahu’s government of causing a “crippling economic crisis in the Palestinian Authority.”
The PA also said in January it would refuse all further US government aid for fear of lawsuits under new US legislation targeting alleged support for “terrorism.”

Finance Minister Shukri Bishara announced earlier this month he had been forced to “adopt an emergency budget that includes restricted austerity measures.”
Government employees paid over 2,000 shekels ($555) will receive only half their salaries until further notice.
Prisoner payments would continue in full, Bishara added.
Nasser Abdel Karim, a Ramallah-based economics professor, told AFP the PA, and the Palestinian economy more generally, remain totally controlled by and reliant on Israel.
The PA undertook similar financial measures in 2012 when Israel withheld taxes over Palestinian efforts to gain international recognition at the United Nations.
Abdel Karim said such crises are “repeated and disappear according to the development of the relationship between the Palestinian Authority and Israel or the countries that support (the PA).”
Israel occupied the Gaza Strip and the West Bank, including now annexed east Jerusalem in the Six-Day War of 1967 and Abbas’s government has only limited autonomy in West Bank towns and cities.
“The problem is the lack of cash,” economic journalist Jafar Sadaqa told AFP.
He said that while the PA had faced financial crises before, “this time is different because it comes as a cumulative result of political decisions taken by the United States.”
Abbas appointed longtime ally Mohammad Shtayyeh as prime minister on March 10 to head a new government to oversee the crisis.
Abdel Karim believes the crisis could worsen after an Israeli general election next month “if a more right-wing Israeli government wins.”
Netanyahu’s outgoing government is already regarded as the most right-wing in Israel’s history but on April 9 parties even further to the right have a realistic chance of winning seats in parliament for the first time.
Israeli-Palestinian peace efforts have been at a standstill since 2014, when a drive for a deal by the administration of President Barack Obama collapsed in the face of persistent Israeli settlement expansion in the West Bank.