US extends sanctions waiver allowing Iraq to buy electricity from Iran

The Biden administration has extended by four months a sanctions waiver that will allow Iraq to continue to purchase electricity from Iran and give Iran limited access to the proceeds to buy humanitarian goods.

Secretary of State Antony Blinken signed the 120-day waiver extension and it was transmitted to Congress on Tuesday, US officials said.

The move is likely to draw criticism from Iran hawks on Capitol Hill and elsewhere who believe the extension will reward Iran at a time when it is coming under increasing pressure to end its support for proxy groups, including Hamas, that are destabilising the Middle East.

There is roughly USD 10 billion in Iraqi payments for Iranian electricity currently being held in escrow accounts in Iraq, and the waiver will allow Baghdad to maintain its energy imports without fear of US penalties for violating sanctions on Iran.

It will also keep in place a provision included in the last 120-day waiver under which portions of the electricity proceeds can be transferred to accounts in Oman and then converted to euros or other widely traded currencies for Iran to buy non-sanctioned products.

The officials, who spoke on condition of anonymity to discuss the decision-making process, said Blinken signed the waiver mainly because the administration doesn't want to cut Iraq off from a critical source of energy.

But, they said the administration is confident Iran will not be able to use any of the money for nefarious purposes. They said a rigorous vetting process is in place to ensure that the cash can only be used for food, medicine, medical equipment, and agricultural goods.

Blinken visited Baghdad on November 5 and met with Iraqi Prime Minister Mohammed Shia al-Sudani during the course of a Middle East trip focused on the Israel-Hamas war and efforts to prevent it from spreading into a broader regional conflict.

The officials added that only a small amount of the money held in Iraq had been transferred to Oman during the past 120 days and that none of the money now held in Omani banks had yet been spent.

The waiver is similar to one signed by Blinken earlier this year, which freed up some USD 6 billion that South Korea had paid to Iran for oil imports in exchange for the release of Americans held prisoner by Tehran.

Under that waiver, the money held by South Korea was transferred to banks in Qatar and was also restricted for the purchase of humanitarian supplies.

However, Iran hawks point out that the waivers can allow Iran to free up domestic revenue it would have otherwise spent on humanitarian goods to fund proxies like Hamas, Lebanon's Hezbollah, and the Houthis in Yemen.