The Central Bank of Iraq on November 28 sent out a memo to banks and bureaux de change banning the selling of US dollars to Iraqi citizens looking to travel across the border to Iran.
Iraq is in a precarious situation in that it needs to balance the competing demands of Iran—Iraq remains Iran’s biggest export market—and Washington when it comes to following the heavy sanctions regime reimposed on Tehran by the US. Whether the dollar move is backed up with enough enforcement to make it more than a formality, designed to encourage the Americans to relent in other sanctions areas, remains to be seen. After the US triggered sanctions against Iran’s energy and banking sectors on November 5, Baghdad successfully obtained a 45-day waiver allowing it to continue importing Iranian gas. Iraq will likely apply to US Office of Foreign Assets Control (OFAC) for an extension of the exemption. The sanctions aimed at neighbouring Iran have already substantially hurt the Iraqi economy.
A document issued by the Iraqi central bank and obtained by bne IntelliNews states that the US dollar must not be provided to those stating an intention to travel to Iran. An alternative currency is to be provided.
Iraq and Iran have previously said that they would use the euro and Iraqi dinar for bilateral trade to avoid secondary sanctions from the US hitting Baghdad. The document referred to an announcement of the president of the Iranian Chamber of Commerce on the cancellation of the use of the dollar in trade with Iraq.
Harsh economic attack
The Trump administration is conducting a harsh economic attack on Iran, throttling it with unprecedentedly tough sanctions to try to pressure Tehran to come to the table to renegotiate its Middle East policies and activities, particularly in conflict zones.
Iraq, meanwhile, is enjoying a growing place for its products on the Iranian market given the difficulties producers in Iran are having in importing raw materials in the face of the sanctions.
Looking at trade flowing the other way, Iraq imported some $6bn of Iranian goods—from air conditioners to agricultural products to car parts—in the year to March, amounting to around 15% of its overall imports last year. Much of the trade is conducted by private Iraqi companies said to have limited exposure in and to the US, and its financial system, and therefore not overly anxious about being sanctioned.
On November 21, Iran announced that smuggled goods with a value of at least $12bn flowed into and out of Iran during the 2017/2018 Persian calendar year (ended March 21).