Iraq sets up 'loophole' in U.S sanctions to buy Iranian power

Iraq is establishing a financial 'loophole' to continue buying vital gas and electricity from Iran despite U.S sanctions, 'AFP' has learned, mirroring a European mechanism that came into effect on Friday.

The 'special purpose vehicle' (SPV) would allow Iraq to pay for imported Iranian energy in Iraqi dinars, which Iran could use to exclusively buy humanitarian goods, three senior Iraqi officials said.

The workaround would allow Baghdad to keep the lights on and avoid shortage-driven protests without triggering U.S sanctions, as it treads an increasingly precarious tightrope between its two main allies Tehran and Washington.

One senior government official told it was the product of months of talks between Iraqi, Iranian and U.S officials.

"The Iraqi government will continue to pay Iran for gas by depositing money into a special bank account inside Iraq, in Iraqi dinars," the official said.

"Iran will not be able to withdraw the money, but will be able to use it to purchase goods from outside Iraq." Iraq has an outstanding bill of around 2 billion for previous gas and electricity purchases, according to Iranian Oil Minister Bijan Zangeneh.

(with news agency inputs)