Iran is currently pressing Iraq to repay substantial debts linked to natural gas imports. During a visit to Tehran by Iraqi Prime Minister Ali al-Zaidi, officials from Iran insisted on the repayment of approximately $11 billion that Iraq owes for years of gas imports. This development sheds light on complex financial transactions and the geopolitical dynamics affecting both nations.
Negotiations Stalled Amidst Debt Concerns
Two Iraqi sources close to al-Zaidi revealed that the discussions were far from easy, despite official statements suggesting otherwise. When pressed on the debt, al-Zaidi proposed transferring $1 billion to Saudi Arabia to settle Hajj-related fees owed by Iran. However, Iranian officials rejected this proposal, insisting that the repayment be made directly to them. This refusal highlights the strained financial relationship and the challenges faced by Iraq in terms of adhering to U.S. sanctions limiting direct financial transactions with Iran.
The situation is complicated further by the existing U.S. sanctions, which have frozen Iraqi payments to Iran. As it stands, Iraq’s total unpaid debt to Iran for natural gas imports is estimated to be around $11 billion, a figure that remains stagnant due to banking restrictions preventing the transfer of funds in U.S. dollars.
Iraq’s Energy Dependency and its Implications
For years, Iraq has depended significantly on Iran for natural gas and electricity to fuel its energy infrastructure. However, the U.S. has intensified pressure on Iraq to decrease this reliance. In early 2025, the U.S. withdrew previously granted sanctions waivers that allowed Iraq to make payments for energy, creating additional complications for Baghdad’s financial dealings with Tehran.
During his visit to Iran, al-Zaidi also raised concerns regarding the transit of Iraqi oil tankers through the Strait of Hormuz. He sought assurances from Iran for the secure passage of these vessels due to ongoing disruptions in this crucial waterway. Iranian President Masoud Pezeshkian informed al-Zaidi that Iranian authorities had already suggested exempting Iraqi vessels from restrictions. However, the commitment was not formalized in the subsequent joint statement, leaving Iraq’s vital oil export operations in uncertainty.
Impact on Iraq’s Economy and Future Strategies
The matter is pressing, especially considering that oil exports account for over 90% of Iraq’s government revenue. Before the current geopolitical tensions, Iraq was exporting about 90 million barrels of oil monthly through the Strait of Hormuz, but this figure has plummeted to roughly 10 million barrels as of April. Consequently, Iraq’s financial landscape is under severe strain, with losses tied to these complications exceeding $120 billion, according to parliamentary officials.
The Iraqi Prime Minister’s financial adviser also emphasized the significant losses estimated between $40 billion and $45 billion that have occurred since hostilities escalated between the U.S. and Iran. This downturn poses a serious threat to public sector salaries and government spending, increasing the volatility of the Iraqi dinar and its depreciation against the U.S. dollar.
Underlying Tensions and Future Considerations
Discussions between Iran and Iraq often bear the weight of historical tensions and regional politics. Details regarding private talks between al-Zaidi and Iranian officials indicate that Iraqi armed factions were not a focal point during public meetings. While al-Zaidi did not request a dialogue with Iran’s Supreme Leader, he engaged with other high-ranking officials, including the Iranian Parliament Speaker.
Ultimately, the outcome of al-Zaidi’s visit underscored the intricate web of economic dependencies and political challenges that shape relations between Iran and Iraq. As geopolitical tensions continue to evolve, the financial stability of both nations remains in flux, requiring astute navigation to ensure economic survival and energy security.