Iraq won't be left hanging amid Washington's sanctions on Iran, which supplies almost half of its electricity, experts familiar with US policy told CNBC on Wednesday, with a plan to reduce Baghdad reliance on Tehran.
President Donald Trump’s administration in November granted Iraq a 45-day waiver to continue its energy purchases, and at the risk of setting off more instability in the country, the US is now expected to continue allowing transactions with Iran under yet-to-be-decided conditions.
"I think that the US is going to try to find a workaround for Iraq," Richard Nephew, who served as the State Department's lead sanctions expert for negotiations with Iran from 2013 to 2014, told CNBC. "The US government knows that Iraq is a key country in the competition starting between the United States and Iran."
And after billions spent on years of war and occupation, Washington has a real interest in Iraq's success, he added, "not least of which is as a bulwark against Iran." A determination will be made to extend Iraq's waiver, a state department official told CNBC, though a decision has yet to be reached.
Iran is Iraq's third-largest trading partner, with an estimated $12 billion in cross-border trade per year, and the majority-Shia countries share strong cultural, religious and geographic ties. And despite being OPEC's second-largest producer of oil, Iraq is dependent on Iranian natural gas plants for up to 45 percent of its electricity — a setup now facing potential jeopardy amid U.S. sanctions.
Without continued sanctions exemptions, Iraq could lose around a third of its power overnight, energy analysts say.