It can safely be surmised that whatever the new Iraqi Prime Minister, Mustafa al-Kadhimi, told U.S. government officials during his visit last month to Washington went down like a lead balloon. This can be inferred from the fact that before his U.S. trip Washington had granted Iraq a 120-day waiver to allow it to continue to import electricity and gas from neighboring sanctioned Iran but just after the trip the waiver length was slashed in half. OilPrice.com can confirm from sources who work closely with Iran’s Petroleum Ministry that al-Kadhimi promised the U.S. that Iraq would reduce its ties to Iran in the coming weeks and months but that continued evidence to the contrary compelled Washington towards disbelief. In broad terms, the length of the sanctions waivers granted to Iraq by the U.S. for imports from Iran is inversely proportionate to the degree to which Iraq is perceived by Washington to be co-operating with Iran. Although the 120-day waiver in May that immediately preceded the al-Kadhimi visit to Washington was in line with the longest duration waivers granted since the U.S. re-imposed sanctions on Iranian energy exports in November 2018, the waiver immediately before that was the shortest ever given, at just 30 days. This was given in response to Iraq’s signing a two-year contract – the longest deal yet - for the export of electricity and gas from Iran. At the press conference in which this shortest-ever waiver was announced by U.S. State Department spokeswoman, Morgan Ortagus, it was also pointedly announced that new sanctions would be imposed against 20 Iran- and Iraq-based entities that were cited as funneling money to Iran’s Islamic Revolutionary Guards Corps’ (IRGC) elite Quds Force.
According to a statement delivered by Ortagus at that time, the 20 entities were continuing to exploit Iraq’s dependence on Iran as an electricity and gas source by smuggling Iranian petroleum through the Iraqi port of Umm Qasr and money laundering through Iraqi front companies, among other sanctions-busting activities. According to the Iranian sources spoken to by OilPrice.com last week, the only change that has been made to these operations is that the names of the front companies and the ports used have been changed and that even more of the money is now making its way through Chinese and Russian banks and other financial institutions and out into the wider global capital markets than before, which the U.S. is effectively powerless to prevent.
Washington was also extremely concerned that Iraq was continuing to act as a conduit for Iranian oil and gas supplies to make their way out into export markets in southern Europe and, in much greater volume, to Asia, especially China. For oil, as OilPrice.com has long highlighted, enormous quantities of Iranian crude continue to move across the extremely long and extremely porous border with Iraq in two key ways. One method is simply via large oil tanker trucks moving from one side of the border to the other and then changing the stickers on the side of the trucks, whereupon the Iranian oil is generally sent on through Turkey and into the energy-starved, less rigorously policed ports of southern Europe (including those of Albania, Montenegro, Bosnia, and Herzegovina, Serbia, Macedonia, and Croatia).
Related: Natural Gas Will Rule The US Energy Market For Decades The other much higher-volume practice is re-routing oil taken out of the ground on the Iranian side of shared oil fields – notably including Dehloran (Iraq side, Abu Ghurab), Naft-Shahr (Khorramshahr), Azadegan (Majnoon), Naft Shahr (Khorramshahr), Yadavaran (Sinbad), Azar (Badra) - to the Iraqi side and the resultant barrels again being re-branded as Iraqi oil, with most of this moving onwards via ships to China. Additionally, Iranian oil continues to pass through Iraq and on into Syria with the surplus that is not used there also easily making its way out of one of the country’s big Mediterranean ports, including Tartus and Banias.
The sheer scale of this was exclusively revealed by OilPrice.com in early August after a number of high-profile reports in the preceding week purported to show that data released on 26 July by China’s General Administration of Customs (GAC) was clear evidence that China did not import any crude oil from Iran in June ‘for the first time since January 2007’. As highlighted by OilPrice.com, from 1 June to 21 July (51 days), China imported at least 8.1 million barrels of crude oil – 158,823 barrels per day (bpd) - from Iran by disguised ship-to-ship transfers, and another 6.8 million barrels or so over the same 51 day period (another 133,333 bpd) indirectly via Malaysia (and to a much lesser extent, Indonesia). All of this was sold at the US$10.95 per barrel discount to the headline Iranian grade price exclusively highlighted in earlier reports by OilPrice.com, and Iran also offered China CIF (cost, insurance, and freight) cargoes at FOB (free-on-board) pricing.
Over the same 51 day period, a final 1.2 million barrels (23,529 bpd) of Iranian oil – re-labeled Iraqi crude – went to China, and sold at a US$12 per barrel discount to the Basra blend price, and Pakistan commercial agents took an additional 1.1 million barrels (21,568 bpd) of crude oil purchased on behalf of China. This meant that over the 1 June to 21 July period alone, China imported at least 338,000 bpd of Iranian crude oil, equating to over 67 percent of its total 500,000 bpd of exports over that period. According to various tanker tracking companies, Iran’s crude oil exports were still rising through September, albeit across a wide range of estimates from the tracking firms of between 400,000 bpd and 1.5 million bpd.
The final part of the toxic jigsaw for the U.S. is that there appears to have been no serious action taken by the Iraqis to protect U.S. personnel or hardware currently on the ground in Iraq against attacks from a multitude of paramilitary groups. As also highlighted by OilPrice.com, according to a senior source in Washington close to the Presidential Administration: “We’ve been down this road before with Pakistan – [with] the government pretending to help in our fight against AQ [Al-Qaeda] but at the same time the ISI [Inter-Services Intelligence] offering all the help it could to [Osama] bin Laden and we’re not playing that game again.”
The parallels between Iraq and Pakistan have been all too clear to Washington this year, beginning in January when Iranian surface-to-surface missiles hit two Iraqi military bases housing U.S. troops. At that point, U.S. President Donald Trump said that he would impose sanctions directly on Iraq if the U.S. military was forced out of the country by further such incidents. In March, though, 30 107-mm Russian-made Katyusha rockets were fired at the U.S. allied Camp Taji military base north of Baghdad, killing three service members, two of them Americans and one British, according to U.S. and Iraq military officials.
This attack was in the same style as the rocket attacks on 4 January on the U.S.’s Balad Air Base near Baghdad and on the Green Zone, both reportedly Iran-sponsored retaliation for the Soleimani killing, and as the multiple rocket attack of 3 December 2019 on the U.S. Ayn al-Asad airbase in Iraq that was a key factor in the U.S. deciding to neutralize the al-Quds leader. Overall, so far this year, there have in fact been at least 15 further significant attacks on U.S. military and neo-military personnel (and those of its allies) in Iraq by Iran proxies this year alone, according to U.S. military sources.
It was always extremely unlikely that al-Kadhimi would upset the longstanding deep and broad relationship between Iraq and Iran. For a start, he is not the real leader of Iraq, with this mantle belonging to the firebrand cleric, Muqtada al-Sadr, and his ‘Sairoon’ (‘Marching Forward’) power bloc that triumphed in the last general election in Iraq in May 2018. Although al-Sadr’s nationalist ideology may initially have been seen by the U.S. as offering an equal footing to all of the foreign powers vying for position in Iraq, in reality, much of his power base is just a re-constituted alliance of the previous exceptionally effective anti-U.S. Mahdi Army militia that he personally led from 2003 to 2011.
“Whatever he [al-Sadr] does or says, it is absolutely the case that he fundamentally hates the U.S. and believes that Iran is a true ally of Iraq,” one of the Iran sources told OiPrice.com last week. It was al-Sadr who privately endorsed al-Kadhimi as prime minister and al-Kadhimi’s formal appointment was only able to be ratified in parliament because of the support of the powerful political Fateh Coalition, which has extremely close ties to Iran. According to one of the Iran sources, the key reason for the Fateh Coalition’s sudden support for Kadhimi – which had previously vetoed Kadhimi’s appointment - was that: “Al-Kadhmi, an old intelligence hand with already close links with the IRGC [Iran’s Islamic Revolutionary Guards Corps, with which Kadhimi co-ordinated the strategy to defeat Islamic State] had already agreed to the pre-existing co-operation template with Iran, which did not include any meaningful expansion of Iraq’s relationship with the U.S.”
By Simon Watkins for Oilprice.com
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