The Trump administration has granted Iraq a new, 90-day exemption from sanctions targeting Iran, enabling Iraq to continue energy imports that account for about one-third of the country's electricity supply.
When the sanctions first snapped back into effect, on Nov. 5, the U.S. granted a 45-day waiver, and that grace period has now been extended by another 90 days, according to multiple officials on both sides of the negotiations.
Several key questions remain unanswered, however, including why the extension was granted and what Iraq needs to do in order to earn future waivers.
Both American and Iraqi officials acknowledged it was not realistic to expect Iraq to cut off its Iranian energy purchases all at once, because there was no ready alternative to replace the large volume of supply on which Iraq had come to depend.
Iraq imports about 1.5 billion standard cubic feet per day (scf/d) of Iranian gas through two sets of pipelines, fueling about 4,000 megawatts of domestic power production, according to a senior Electricity Ministry official; and Iraq imports about 1,000 megawatts of electricity via cross-border, high-voltage power lines.
The sanctions do not appear to prohibit such imports explicitly, but they do prevent dollar-denominated payments to Iranian banks - raising challenging questions about how Iraq would continue paying for Iranian energy without triggering economically crippling consequences. (Prior to the snapback date, Iraq ended its crude trade with Iran, which is specifically prohibited by sanctions.)
In response to these challenges, the U.S. government expressed willingness in principle to grant waivers - but only if Iraq met certain conditions.
Officials on both sides of the negotiations say that one key American demand has been for Iraq to produce a medium-term plan for ending its dependence on Iranian energy imports, mainly by increasing domestic gas production and electricity supply.
Another point of negotiation has centered on the question of how, in the short term, Iraq can continue paying for its Iranian imports without violating the most rigid elements of the sanctions regime.
It remains unclear, however, which of these conditions - if any - Iraq had to meet in order to earn either the initial 45-day waiver or the 90-day extension.
Some Iraqi and American officials have suggested the terms have been left deliberately vague, noting that the U.S. seems to be wielding the unresolved issue to maximize its influence.
For example, American negotiators have left at least some of their Iraqi counterparts with the impression that the U.S. will be more willing to grant leniency if Iraq agrees to build out its domestic gas and power sectors in partnership with American businesses - effectively using the threat of sanctions to help U.S. companies win contracts.
And many officials on both sides of the talks say that the sanctions issue was a key pressure point that enabled American diplomats to persuade the Iraqi government to strike an agreement with the autonomous Kurdistan Regional Government (KRG), to export oil from federal fields through the KRG-controlled pipeline to Turkey.
The Trump administration has done little to explain its policy publicly, aside from a short video released by the U.S. Embassy in Baghdad on Nov. 8, which aimed to explain the initial 45-day waiver.
"This relief gives Iraq time to start taking steps towards energy independence," the video said, without giving further details about what Iraq would have to do in order to continue importing Iranian gas and electricity.
Most gas imports flow through a pipeline entering Diyala province, feeding a power plant there, and running south to two power plants in Baghdad. A senior Electricity Ministry official said that accounts for about 1.25 billion scf/d.
A second line, running into Basra province, provides 350 million scf/d of gas to a power plant there. Hayan Abdulghani, the director general of Iraq's state-run South Gas Company (SGC), said projects underway would allow Iraq to eliminate that supply within two years.
Ben Lando reported from the United States. Ben Van Heuvelen reported from Baghdad and the United States.