How Would US Allow Iraq To Pay Its $2.7b Debt To Iran?
The United States is said to have given Iraq permission to pay $2.7 billion of its debts to Iran but the mechanism by which the money would be released remains murky.
The United States is said to have given Iraq permission to pay $2.7 billion of its debts to Iran but the mechanism by which the money would be released remains murky.
Iraqi Foreign Minister Fuad Hussein was reportedly given the clearance during a meeting with US Secretary of State Antony Blinken on the sidelines of the Riyadh Conference on June 8, Reuters cited a senior Iraqi official, who spoke on condition of anonymity.
The Iraqi foreign ministry source said that the funds will be transferred through the Commercial Bank of Iraq and Iranian officials have confirmed that the money will be used for Iranian Hajj pilgrims' expenses and foodstuffs imported by Iran.
Iranian officials have claimed that the money in Iraqi banks could be as much as $10 billion or more. Yahya Al-e Eshaq, the head of the Iran-Iraq chamber of commerce, was quoted as saying by the local media Saturday that the Iraqi debt is between $7 to $8 billion but only $2.7b has been agreed to be released and that part of the funds has been earmarked for pilgrims and another portion has been used to purchase basic goods.
On Monday, Iranian lawmaker Hassan Norouzi claimed that the money will be provided to the Hajj pilgrims in forms of subsidies to buy dollars at a slightly lower rate than free market. However, he criticized the decision, saying that the money belongs to all Iranians and not a small number of affluent individuals, who can afford the Hajj pilgrimage in the first place.
Norouzi, who is the vice-chairman of the Judicial and Legal Committee of the parliament, pointed to the country’s dire economic situation, calling the scheme "a definitely wrong move."
"This money belongs to the entire nation and should be spent for the sustainable goals of the Iranians,” he said. It is better “to spend the money on Tehran’s water, so that residents of the capital would not have to drink water contaminated by nitrate.”
The annual Islamic pilgrimage to Mecca, Saudi Arabia -- the holiest city for Muslims -- is a mandatory religious duty that must be carried out at least once in their lifetime by all adult Muslims who are physically and financially capable of undertaking the journey. This year Hajj ceremonies will be held around late June through early July and the average price for Iranians to go to the journey is about $5,000, a rate set by the host country Saudi Arabia.
The key condition for the pilgrimage is physical and financial ability of the applicants. If the government is supposed to subsidize the journey, then it is not a real pilgrimage.
The Iranian government organizes and controls the Hajj pilgrimage, including paying Saudi Arabia in US dollars for the expenses of each traveler, and providing dollars to pilgrims to spend during their journey. But instead of charging each pilgrim the full amount based on high free market exchange rate, it provides these dollars at a low preferential rate, in effect subsidizing the pilgrimage.
However, the total amount of the subsidy would still be a tiny fraction of the $2.7 billion that is reportedly about to be unblocked, considering that the number of the pilgrims is at most 80,000 people. The total subsidy the government would spend on pilgrims this year will be around $200 million.
The question is how Iraq plans to release the $2.7 billion including whatever has been designated for pilgrims. Officials of all three countries are silent on the issue. If a few hundred million dollars is set aside for pilgrims, would it be transferred to Saudi Arabia as payment for expenses? Or cash dollars will be provided to the Iranian government, which would violate the purpose of US banking sanctions to begin with.
Multiple reports this week suggest the US is offering financial incentives to the Islamic Republic in exchange for Tehran slowing its production of enriched uranium. Late in May, Iran International ported that the United States was offering to release Iran’s funds held in Iraq and South Korea in exchange for Tehran to show more flexibility on issues related to its nuclear program, and the release of American dual nationals held hostage in Iran.
A week later, on June 7, Haaretz confirmed the report saying that the United States was offering to release $20 billion in frozen Iranian funds — currently held by South Korea, Iraq, and the International Monetary Fund — in exchange for Iran limiting further production of high-enriched uranium.
Another report on June 8 by Middle East Eye (MEE) echoed much of Haaretz’s reporting but added that the administration would allow Iran to export an additional one million barrels of oil per day, which would likely require the president to issue a national security waiver.
Iranian and American officials have rejected the reports, but – according to The Foundation for Defense of Democracies (FDD) -- questions remain about whether an agreement may proceed without official text or notification to Congress, as required under existing law.
The head of the FDD, Mark Dubowitz, says: “The Biden administration hopes that Tehran will be more amenable to a ‘longer and stronger’ deal after getting major nuclear and economic concessions in exchange for a ‘shorter and weaker’ arrangement. This is an illusion. Iranian leaders understand power and leverage better than President Biden and his team do. The emerging ‘less for more’ deal is the worst deal of all.”
“The administration may be looking to evade congressional review by trading billions of dollars to Iran in exchange for a temporary halt to higher levels of enrichment, all without a written agreement or public acknowledgment. Paying Iran to sit patiently on the nuclear threshold won’t stop Iran from developing nuclear weapons, but it will subsidize attacks against Americans, Israelis, Ukrainians, and Iranians," said Richard Goldberg, a senior advisor at the FDD.
Heshmatollah Falahatpisheh, the former head of the Iranian Parliament's Foreign Policy and national Security Committee who often commentates on nuclear-related issues, claimed that Tehran and Washington are willing to agree to an “unwritten deal”.
“This means that the American side will no longer enforce the ‘maximum pressure’ policy [of the Trump administration], close its eyes to some of Iran's energy deals, and [allow] the release of Iran's frozen funds in return for Iran refraining from expanding its nuclear program more than the current level,” he told Khabar Online in Tehran.
Falahatpisheh also said a return to the JCPOA is no longer desired by either of the sides because both know that it can no longer be revived.
A return to the 2015 deal, he said, will force Tehran to give up much of the advancements it has made in its nuclear program at a very high cost, that is, giving up its new and more advanced centrifuges and a stockpile of 60-percent enriched uranium, banned under the JCPOA.
Also, the pressure of public opinion in the US has made a return to the deal impossible for the Biden administration, he argued.
Falahatpisheh also said the US may agree to Iran selling one million barrels of oil per day.
Referring to Supreme Leader Ali Khamenei’s implicit endorsement of some kind of agreement, the moderate conservative former lawmaker told Khabar Online that Khamenei’s stance was “close to the views of moderates such as Mohammad-Javad Zarif, the former foreign minister who was the lead Iranian person in the 2015 deal.
Addressing a group of Iranian nuclear scientists and officials in Tehran Sunday, Khamenei said a deal with West can be accepted if it does not impact Iran’s nuclear infrastructure and insisted that Iran will not opt for nuclear weapons simply because of Islamic principles, “otherwise, they could not have prevented us.”
Many in Iran interpret Khamenei’s remarks as endorsement of an deal, similar to his 2013 implicit endorsement of talks that led to the signing of the JCPOA. This interpretation was reflected by a slight drop in forex rates: The dollar which stood at 490,000 rial against the rial Sunday dropped to 470,000 on Monday.
"I'm not opposed to the right diplomatic moves. I believe in what was described years ago as heroic flexibility," Khamenei said in a September 17 speech to Revolutionary Guards (IRGC) commanders.
“Heroic flexibility” in dealing with the West regarding the nuclear issue, he said, was similar to a wrestler exercising flexibility as a tactic to overcome his adversary, but insisted that Iranian diplomats had to remain faithful to the Islamic Republic’s principles. "A wrestler who exercises flexibility for a tactical reason should not forget who his rival is and what his goal is," he said.
Iran's foreign ministry spokesman, Nasser Kanaani, however, on Monday rejected speculations about an interim deal with the US. “We confirm no such thing as negotiations for an interim agreement or new arrangements to replace the nuclear deal,” he told reporters at his weekly press conference.
While confirming that Tehran and Washington had held talks in Muscat, Oman, in the past few weeks, he also denied that the talks had been held secretly as alleged by the media.
Kanaani also said Monday that Tehran and Washington could be “very close to exchanging prisoners” without giving any details.
On Saturday a senior Iraqi official was quoted as saying that his country has acquired a sanctions waiver from the US to pay $2.7 billion of its debt for gas and electricity to Iran. The release of Iranian funds in Iraq could be the price for the release of American, and possibly other western hostages, held by Iran.
Speaking during his weekly press conference on Monday, Foreign Ministry spokesman Nasser Kanaani said: “We confirm no such thing as negotiations for an interim agreement or new arrangements to replace the nuclear deal.”
Despite the fact that Tehran’s extraneous demands collapsed the Vienna talks, Kanaani claimed that “Iran’s government has never left the negotiation table and has shown its readiness to conduct serious and substantive negotiations in order to reach a conclusion” on reviving the nuclear deal, officially called the Joint Comprehensive Plan of Action (JCPOA).
His remarks came only a day after Iran’s ruler Ali Khamenei said reaching a deal would be acceptable if the country’s nuclear infrastructure remains intact. Echoing Khamenei’s remarks, Kanaani reiterated that Iran will continue to rely primarily on trying to neutralize sanctions as it does not trust the West, and at the same time, pursue negotiations to have them removed altogether.
Former US President Donald Trump withdrew from the nuclear pact in 2018, and imposed tighter sanctions on Iran’s energy exports but Tehran has since ramped up nuclear enrichment.
After much speculation, Kanaani also confirmed reports about talks between Iran and the US through Oman in the past few weeks, claiming the Muscat talks were not secret, but an opportunity to defend Iran's national interests.
“We welcomed the mediation proposal put forward by senior Omani officials several weeks ago, and exchanged messages with the opposite side [US], with the aim of activating the ‘sanctions removal’ talks,” he said, using the Islamic Republic’s jargon for Vienna talks.
His claim was also repeated by Mohammad Marandi, a de facto spokesman for the regime who said in an interview with Qatar-based TV channel Al Araby that there have been no secret negotiations between Tehran and Washington.
Offering an insight into details of the secret discussions, Marandi, a US citizen close to Tehran's leadership, indicated there are more than nuclear issues on the table. “There is no direct negotiation between Iran and the United States but indirect negotiations are held by sending messages via third parties, and all of the messages are related to the issue of prisoners and assets that the United States has seized," he said.
The Iranian Foreign Ministry spokesman also revealed in his presser on Monday that Tehran and Washington are close to a prisoner-swap agreement.
He said that although the Islamic Republic is engaging with the US through intermediaries about prisoner swaps, the two could be “very close” to an agreement. “We hope to see the exchange of prisoners because we made all the necessary efforts,” he added.
On Friday, Axios revealed details of the talks between American and Iranian officials in Muscat last month with Omani mediators shuttling between their separate rooms to deliver messages.
According to the Axios report, the “proximity talks,” which have not been previously reported, represent the first known indirect engagement between Tehran and Washington in this way in several months. White House Middle East coordinator Brett McGurk and Iran's top nuclear negotiator Ali Bagheri-Kani were among the officials who traveled to Oman secretly for talks.
The report came after the London-based news outlet Middle East Eye claimed Iran and the United States “are nearing a temporary deal that would swap some sanctions relief for reducing Iranian uranium enrichment activities.”