In the world of foreign policy, rarely do cost-free options exist. Civilians inspect the site of a car bomb attack in Baghdad’s Sadr City neighborhood, Iraq, Wednesday, April 9, 2014. Iraqi officials say a series of car bombs has hit several mostly Shiite neighborhoods in Baghdad, killed and wounded scores of people, according to Iraqi officials. (AP Photo/Karim Kadim) Karim Kadim

US sanctions put Iraq between a rock and a hard place

Daniel DePetris July 02, 05:44 AM July 02, 05:44 AM

In the world of foreign policy, rarely do cost-free options exist.

Policymakers are often forced to deal with crises on the fly, which means that policies enacted in the heat of the moment can turn counterproductive months or even weeks later. Cue U.S. policy in Iraq. In reality, U.S. policy here is as much about Iran as it is about maintaining constructive U.S.-Iraqi relations. Iraq has been the unfortunate victim of Washington’s yearslong maximum pressure campaign against Tehran, a difficult position for the ever fractious government in Baghdad.

The latest dispute isn’t about this week’s U.S. airstrikes on Iranian-supervised Iraqi Shia militia targets. Although it must be noted that those actions elicited condemnation from the Iraqi government. Rather, the current crisis takes center in electricity payments to Iran. This is a perpetual problem for the Iraqi government.

Due to Iraq’s doddering electricity system, Baghdad relies on neighboring Iran for roughly a third of its power. Iranian electricity imports have been a recurring dispute between the U.S. and Iraq. Washington, intent on squeezing the Iranian economy, has long prodded the Iraqi government to build up its domestic capacity in order to decrease Iraqi dependency on Tehran for electricity.

Iraq, however, is nowhere near the point where it can envision a dramatic cutoff of Iranian power. The Iraqi government continues to buy Iranian gas and electricity, even as it struggles to pay Iran for the services. Baghdad owes $4 billion in unpaid bills to Iran. And the Iranians are tired of being stiffed. According to the Associated Press, Tehran has decided to cut energy supplies to Iraq until it receives payment. That means millions of Iraqis could soon be baking in 120-degree temperatures.

What does this have to do with the United States?

Simple: U.S. financial and banking sanctions on Iran prevent the Iraqi government from paying cash directly to Iran. Baghdad is essentially forced to pay up in other ways, either through discounted food exports to Iran or by using Iranian money bottled up in Iraqi financial institutions to buy permissible products on Iran’s behalf. Iraq, in other words, couldn’t pay its bills even if it wanted to.

It’s understandable why the Iraqi government would think twice before releasing cold, hard cash to Iran. Iraq is in dire economic straits; its economy contracted more than 10% last year, in large part to low oil prices and COVID-19 lockdowns. Seven million Iraqis receive government salaries or pensions, which means that lower revenue in Iraqi government accounts will often translate into ordinary Iraqis getting smaller checks than they expected. The last thing Baghdad wants is to exacerbate its troubles by running afoul of U.S. sanctions and getting locked out of the U.S. financial system.

But the loser in this situation isn’t the Iraqi politician or bureaucrat sitting in an air-conditioned office inside the heavily fortified Iraqi capital. It’s the ordinary Iraqi carrying a thinner wallet in the burning summer heat.

The moral of this story isn’t that U.S. sanctions are totally responsible for Iraq’s economic troubles (the Iraqi government isn’t exactly a steward of good governance). Nor is it an argument to ditch U.S. sanctions as a policy tool. Indeed, doing so would foolishly tie one’s hands.

The lesson, rather, is that Washington should be certain (or as certain as it can be) on the front end about the costs and consequences (known and unknown, as the late Donald Rumsfeld would say) of sanctions before they are put into effect. And that when those consequences are unavoidable, remedial measures are in place to address them.

Daniel DePetris (@DanDePetris) is a contributor to the Washington Examiner’s Beltway Confidential blog. His opinions are his own.

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