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Tuesday 20th March 2018

Iraq – Iran’s Gateway to the Grey Market for Oil?


Lamis ElSharqawy

Wed, 08 May 2019 15:15 GMT

The National Iranian Oil Company (NIOC) has announced the opening of an office in Iraq that aims to facilitate oil industry cooperation and the transfer of engineering and technical services to the country, in a move also calculated to deepen relations with its neighbour.

The announcement comes as US sanctions waivers for countries importing oil from Iran are set to expire on Thursday May 9th, with the US vowing not to renew them. Iran now has more limited options in light of its continuing destabilisation policy in the Middle East and prolonged defiance of the international community.

Meanwhile, Deputy Oil Minister Amir Hossein Zamaninia, has acknowledged, according to local media, that his country is mobilising all its resources to sell oil in a "grey market” through steep discounts. He also affirmed that Iranian oil exports “will not certainly be sold by 2.5 million barrels per day as under the (nuclear deal).”

The grey market refers to an unofficial marketplace where legally manufactured products are distributed and sold outside the terms of any agreements between the reseller and the manufacturer, according to Investopedia.

As sanctions waivers approach their expiry date, Iraq’s case stays special. The Trump administration has granted Iraq a renewed 90-day waiver exempting it from US sanctions on Iran in March, pressurized by the devastating situation in the country and alerted by its possible explosion after years of war and lack of investment, according to CNBC.

The US imposed military and economic sanctions on Iran, primarily aimed at the oil sector which represents a lifeline to the country, in August 2018 following the US withdrawal from the 2015 Joint Comprehensive Plan of Action (JCPOA).

The US measures aimed to prevent Iran from both developing a missile programme and from intervening in neighbouring countries. As reported by Reuters, all sanctions were fully imposed in November 2018, and included the automotive sector, the metal trade and the Iranian rial.

On March 20th, Yleem Poblete, assistant secretary of state for arms control, verification, and compliance told a UN-sponsored Conference on Disarmament in Geneva, that Iran’s missile programme is destabilising the Middle East and raising the risk of a "regional arms race.”

President Donald Trump also said that Tehran was not living up to the “spirit” of the accord because of its support for militants in the region and for continuing to build nuclear capability and ballistic missiles.

With this situation, Iraq has become more vital for the Iran regime that is trying to find a way out of its dilemma. According to US media, Iran has been using Iraq as its long-time backyard, taking advantage of its proximity to and its first refuge to export its oil through porous borders.

As Iran has been suffering immense economic pain, so too has it been forging strong ties with Iraq by expanding its interests, at the same time helping to rebuild Iraqi infrastructure destroyed due to war between militant groups and government forces. Iran also helps in developing mutual fields and old refineries, as the mutual relationship between the two countries has grown.

Iran and Iraq share 1629 kilometres of border and have 12 joint oil fields including Naft Shahr, Naft Khaneh and Dehloran.

Being its third-largest trading partner, Iraq is a very special case to Iran, which explains why Iran is seeking to reach major oil agreements and increased trade between the two countries, called for by Iranian President Hassan Rouhani during the last visit to Tehran of Iraq's Prime Minister Adel Abdul Mahdi.

The focus of understanding in this visit was the development of the Naft Shahr and Khorramshahr oilfields, Oil Minister Bijan Zanganeh said afterwards on April 6th. Rouhani called on Iran and Iraq to expand their gas, electricity and oil dealings and boost bilateral trade to $20 billion in order to defy difficulties caused by US sanctions against Tehran.

Evidence that Iran is scared of Iraq relinquishing its backing for the devastated Iranian economy comes from Zanganeh’s criticism of Iraq for not agreeing to develop shared oilfields due to US sanctions fears.

Faced with US withdrawal from the Iran nuclear deal, Tehran is expected by analysts to focus on preserving its interests in neighbouring Iraq, since its relationship with most of the other countries in the region is not the best.

One way in which Iran has been trying to increase its economic role in Iraq is through funding efforts for reconstruction, thus allowing its non-oil industries to play an important role.

Middle East