March 7, 2019 Special Dispatch No. 7932

In Advance Of Iranian President Rohani's Iraq Visit, Iran Takes Control Of Iraqi Banking System – In Cooperation with Iraqi Prime Minister – In Order To Circumvent U.S. Sanctions

March 7, 2019
Iran, Iraq | Special Dispatch No. 7932

In advance of Iranian President Hassan Rohani's upcoming visit to Iraq next week, Iranian regime and banking officials in Baghdad have held preliminary meetings, during which the Iranian regime ensured that it would control the Iraqi banking system in a way that would allow Iran to circumvent the U.S. sanctions.

During the visit, Rohani is expected to sign agreements that go beyond what was concluded in these meetings. The Iranian news agency Tasnim, which is close to Iran's Islamic Revolutionary Guards Corps (IRGC), announced on February 6, 2019 that an Iran-Iraq payment system had been set up during a nighttime meeting in Baghdad between Central Bank of Iran governor Abdolnasser Hemmati and his Iraqi counterpart Ali Al-'Alaq.[1] It should be noted that Iran is striving to create a financial apparatus with Iraq that would allow it to evade the U.S. sanctions that threaten its economy (see MEMRI Inquiry and Analysis No. 1434, Iraq's Importance To The Survival Of Iran's Regime And Economy Following U.S. Sanctions, January 30, 2019)

While the Iraqi media barely covered the visit of the Central Bank of Iran governor's Baghdad visit in early February 2019, apparently in order to conceal the details of the agreements reached, Iranian news agencies reported on the meetings' conclusions and agreements. According to the reports, beyond decisions regarding a mechanism for Iran-Iraq payments, extensive sectors of the Iraqi political and financial leadership firmly support upgrading banking relations and trade with Iran. Thus, Iraqi Prime Minister Adel Abd Al-Mahdi, a Shi'ite supported by the U.S., personally committed to the agreements obtained and is a fervid supporter of continued bilateral negotiations with Iran. Central Bank of Iraq governor Ali Al-'Alaq seeks to remove the obstacles to economic cooperation, in particular to allow foreign currency to flow into Iran. This is so that Iran can export its oil and natural gas to Iraq and receive euros in exchange. To this end, it was agreed that the Central Bank of Iran would open euro and dinar accounts in Iraq through which payments for the oil and gas would be made.

It should be noted that the U.S. administration has warned that if Iraq becomes a channel for transferring foreign currency to Iran, the U.S. would respond with sanctions on Iraqi banks, and would block their access to dollars.

Furthermore, at a March 4, 2019  press conference in Baghdad, Iraqi President Barham Salih referred to the Iraqi interest in maintaining "very good relations" with Iran. He explained: "[Iranian President] Rohani's trip to Iraq is important. Not long ago, I was in Tehran and conducted in-depth talks with the Iranian upper echelons on many matters. Our relations with Iran are important. I always emphasize, in any country I visit, that Iraq's interests lie in maintaining very good relations with Iran. I deliberately repeat this sentence several times. We Iraqis have an interest in strengthening these relations with Iran, and we must see them as a main issue among all our regional relationships. We have paid a very high price for past [Iran-Iraq] tensions. These relations  with Iran must be based on respect for [our] sovereignty. These are joint interests based on 1,400 km of shared border, and on history, culture, and society... We must remember the importance of this relationship [with Iran]... [Rohani's planned] trip will conclude in agreements and understandings that will advance our reciprocal relations. What will these agreements be like, and of what quality? This will become clear with [Rohani's Iraq] visit."[2]

The following are reports by the Iranian news agency Tasnim and the Iranian financial daily Taadol on agreements reached during the February 19, 2019 Iraq visit by the Central Bank of Iran governor, and a report by the Iranian news agency ISNA on a meeting between Iranian Vice President Eshaq Jahangiri, a reformist, and Iraqi Electricity Minister Luay Al-Khatteeb.

Iranian News Agency Tasnim On Meeting Of Iranian, Iraqi Bank Governors: "A Continuation Of The Financial Agreements Of The Two Countries"

"[Central Bank of Iran governor Abdolnasser] Hemmati, who visited Baghdad for banking talks, said that he met with his Iraqi counterpart on February 5 and expressed hope that the level of financial relations between the two countries would increase. He said: 'Iraq is Iran's largest trade partner, and the durability of this relationship between the two countries requires banking relations. America is conducting an extensive effort to thwart Iran's economic and political situation by waging economic war on Iran, but fortunately the enemy's plots are being neutralized by means of the arrangements that Iran came up with, and now the required stability prevails in Iran's economy.

"'The Central Bank of Iran has reached appropriate financial solutions for trade with Russia, Turkey, India, China, and others. At this time, I am certain that we will arrive at ideal results through cooperation on the part of the Iraqi government and also through following up on the economic relations as quickly as possible and establishing a financial channel for payments.'

"Ali Al-'Alaq, Central Bank of Iraq governor, welcomed his [counterpart] Central Bank of Iran governor Dr. Hemmati, and called the meeting 'a continuation of the financial agreements of the two countries,' and, as such, one that prepares the ground for strengthening economic cooperation between them.

Right: Central Bank of Iraq governor Al-Alaq. Left: Central Bank of Iran governor Hemmati. Source: Tasnim, Iran, February 6, 2019.

"He added that the Central Bank of Iraq would make all efforts to remove the obstacles to economic cooperation between the two countries. He said: 'Also according to the agreements we made, [Iraq's] debts for the export of gas and electricity [from Iran] to Iraq will be paid or transferred as per invoices from the Central Bank of Iran. This framework will be used also for [Iran's] income from future exports. This meeting, that lasted for over four hours, also covered agreements regarding the form of the foreign currency transfer of private Iranian exporters. I hope that after [the arrangement] is final, the problem of restoring exporters' foreign currency revenues will be solved."

Iranian Financial Daily Taadol: Hemmati Said "Agreements... Are Reached Thanks To The Direct Consent And Instructions Of The Iraqi Prime Minister"

The next day, February 7, 2019, the Iranian financial daily Taadol reported that Central Bank of Iran governor Hemmati had, on the second day of his Iraq visit, met with Iraqi bank directors, trade offices, and economic figures. It reported Hemmati as stating:

"Yesterday and today, we arrived at good agreements with the Central Bank of Iraq governor and we believe that banking relations are the key to expanding bilateral economic relations. I saw a strong desire among the Iraqi officials to expand bilateral relations. The Iraqi prime minister fervently supports bilateral negotiations and the agreements that were attained.

"According to the agreement that was attained, the Central Bank of Iran expects to have accounts in euros and dinar, and gas and oil exchanges will be conducted based on these accounts. According to the agreements, Iranian exporters can operate by means of the Iraqi banks and, accordingly, the Iranian banks can hold dinar accounts. Therefore, the Iran-Iraq banking relationship will be strengthened by these agreements, and the agreement of the Iraqi prime minister and the expansion of trade relations between the two countries will take shape based on this. Iraqi companies can also open accounts in Iranian banks and conduct their business in dinars.

"The chairman of the Iraqi Rashid Bank said: 'We are willing to cooperate with Iranian financial companies in the framework of the Central Bank of Iraq. In accordance with this, we seek to establish one branch in Iran which, if there is agreement, will play an important role in bilateral trade.'   

"[Central Bank of Iran governor] Hemmati added: 'According to these agreements, I agree to the proposal to establish and open branches of Iraqi banks in Iran, and I believe that opening them in Iran can help [create] a chain of agreements, and expand them. I hope that we will see the implementation of agreements that are reached thanks to the direct consent and instructions of the Iraqi prime minister. The Central Bank of Iran governor said that there is a need for regular monthly bilateral meetings."[3]

Iranian News Agency ISNA: Iraqi Electricity Minister Says "Iraq Wants To Become A Manufacturing Country Through Partnership With Iran And Through Utilizing Iran's Capabilities And Experience"

According to an ISNA report, in his meeting with Iraqi Electricity Minister Al-Khatteeb, Iranian Deputy Prime Minister Eshaq Jahangiri, a reformist, said: "Iran will be alongside Iraq during its reconstruction. Those who want to destroy Tehran-Baghdad relations must know that these two countries have strong relations.

"Tehran is ready to expand its cooperation with Iraq in all areas. Good agreements were arrived at between the governors of the central banks of the two countries, and I hope that after expanding banking cooperation, Tehran-Baghdad economic relations will expand even more."

Also according to the report, "Iraqi Electricity Minister Al-Khatteeb said: 'In reality, the sanctions on Iran are sanctions on other countries so that they will not manage to make use of Iran's achievements. The media are trying to show that Tehran-Baghdad relations are political and security relations, [but] we want the media to understand the truth of the relations between the two countries with Iran's extensive cooperation in rebuilding Iraq. Iraq wants to become a manufacturing country through partnership with Iran and through utilizing Iran's capabilities and experience."[4]


[1], February 6, 2019.

[2], March 4, 2019.

[3], February 7, 2019.

[4], February 7, 2019.

Share this Report: