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Company Established To Make Purchases On Iran's Behalf To Settle Iraq's $5 Billion Debt

Iranian President Hassan Rohani, right, welcomes Iraqi Prime Minister Mustafa al-Kadhimi as they wear protective face masks to help prevent spread of the coronavirus, during an official arrival ceremony, in Tehran, July 21, 2020

An Iranian trade official said Friday a company has been established in Iraq which will make purchases on behalf of the Iranian government to settle Baghdad's accumulated debts to Iran amounting to $5 billion.

The secretary-general of the Iran-Iraq chamber of commerce Hamid Hosseini told Fararu website in Tehran that the money in question is deposited in Trade Bank of Iraq (TBI). He added that based on a mutual agreement Iran will provide the new company with list of “goods, commodities and raw materials” it needs, and the company will buy the goods and ship it to Iran.

Iraq owes Iran money for gas and electricity and other goods imported from Iran which due to U.S. sanctions cannot be transferred to Iranian banks or the country's overseas accounts.

Iran's Central Bank Governor Abdolnaser Hemmati after a visit to Iraq on June 17 said an agreement had been reached for the payment of Iraq's debts by food and medicine exports to Iran.

According to Hamid Hosseini, the money which is currently held in a special account by Trade Bank of Iraq (TBI) will be used to pay for the "basic commodities" purchased by the newly established company on behalf of the Iranian government. Iraq, however, enjoys a U.S. waiver which allows electricity imports from Iran.

Iranian officials have repeatedly spoken about Iraq's $2 billion debt for gas and electricity imported from Iran. Hossein has not disclosed if the $5 billion debt includes the said $2 billion.

Iranian officials say Iran's trade with Iraq amounts to around $12 billion a year but details of the trade between the two countries has not been announced since the spring of 2019 when Iraq stopped publishing statistical data on its foreign trade.

During the recent visit of Iraqi Prime Minister Mostafa al-Khadimi to Tehran Hassan Rouhani reiterated that the volume of the trade between the two countries should increase to $20 billion a year.

In July 2019 Iraqi sources said Baghdad was planning to introduce a financial mechanism similar to Europe's INSTEX to be able to continue gas and electricity imports from Iran in return for food and medicine, the two items that are not covered by U.S. sanctions.

Iran exports non-oil commodities such as cement as well as gas and electricity to Iraq. In the year between March 2018 to March 2019, Iran exported close to $9 billions of products to Iraq, which was 37 percent higher than in the previous year.

Iraq is the second biggest importer of Iranian non-oil commodities but the volume of Iran's imports from Iraq is very small.