Iranian officials pressed Iraqi Prime Minister Ali al-Zaidi during his recent visit to Tehran to repay $11 billion in outstanding debt accumulated over years of Iraqi imports of Iranian natural gas, according to two Iraqi sources who spoke to MBN.
The sources, one close to al-Zaidi and the other an Iraqi diplomat, said the Iraqi premier told Iranian officials that Baghdad could not currently provide the full amount. Instead, he proposed transferring $1 billion to Saudi Arabia to cover Hajj-related fees owed by Iran. Tehran rejected the offer, insisting that the money be paid directly to Iran.
The sources’ account portrays al-Zaidi’s talks in Tehran as more difficult than the official statements suggested, with Baghdad leaving the visit without securing its main objectives, particularly on the outstanding debt and the passage of Iraqi oil tankers through the Strait of Hormuz.
Iraq faces significant obstacles in repaying the debt in cash and in U.S. dollars because of U.S. sanctions on Iran and the banking restrictions associated with them.
The figure is consistent with publicly available estimates that place Iraq’s unpaid debt to Iran for natural gas imports at roughly $11 billion, funds that have remained frozen because they cannot be transferred under U.S. sanctions.
Nor was al-Zaidi’s proposal unprecedented. Iraq has previously used frozen Iranian funds to cover expenses such as payments related to Iranian pilgrims under arrangements that allowed the release of restricted Iranian assets for specific humanitarian or commercial purposes without directly violating U.S. sanctions.
For years, Iraq has relied on Iranian natural gas and electricity to power parts of its energy grid, even as Washington has steadily increased pressure on Baghdad to reduce that dependence.
In early 2025, the United States revoked sanctions waivers that had allowed Iraq to make energy-related payments to Iran as part of its “maximum pressure” campaign, further complicating any financial arrangements between the two neighbors.
Hormuz at the Top of Baghdad’s Agenda
Another central issue for Baghdad was the passage of Iraqi oil tankers through the Strait of Hormuz. Al-Zaidi asked Iran to guarantee their safe transit amid continuing disruptions in the strategic waterway.
According to the source close to the prime minister, Iranian President Masoud Pezeshkian told al-Zaidi that Iranian authorities had already recommended exempting Iraqi vessels from any restrictions. Al-Zaidi sought to formalize that commitment by including it in the joint statement issued after the visit, but Iranian officials declined.
Speaking at a press conference on Saturday, Bahaa al-Araji, head of the Reconstruction and Development parliamentary bloc, said Iraq had received no positive assurances from Iran regarding the export of its oil, the country’s primary source of revenue. He said Iraq’s losses linked to the issue had exceeded $120 billion, including $48 billion since fighting between the United States and Iran began.
In a separate interview with MBN, Mazhar Mohammed Saleh, the Iraqi prime minister’s financial adviser, estimated that Iraq had lost between $40 billion and $45 billion since fighting between the United States and Iran began in late February.
Baghdad’s request carries particular urgency because more than 90 percent of Iraq’s government revenue comes from oil exports, the vast majority of which transit the Strait of Hormuz. Before the conflict, Iraq exported roughly 90 million barrels of oil per month through the strait. By April, that figure had fallen to about 10 million barrels.
Behind Closed Doors
The two sources also disclosed details about the private discussions that took place during the visit.
According to both sources, Iraq’s armed factions did not feature prominently in the publicly announced meetings. The sources said they believed the issue was discussed during a separate meeting between al-Zaidi and Iranian Parliament Speaker Mohammad Bagher Ghalibaf, although they could not confirm what was said.
According to the source close to the prime minister, al-Zaidi did not request a meeting with Iran’s Supreme Leader, Mojtaba Khamenei.
Al-Zaidi arrived in Tehran on Thursday, where he met President Pezeshkian and oversaw the signing of several agreements and memorandums of understanding.
The visit came just days after the Iraqi prime minister traveled to Washington, where he met U.S. President Donald Trump and the two governments announced a new strategic partnership between Baghdad and Washington.
Iran has continued missile, drone, and naval attacks on commercial vessels traveling outside the routes designated by Tehran in the Strait of Hormuz. The June 17 memorandum of understanding with Washington was intended to end the attacks, but they continued, prompting the United States to escalate military operations aimed at safeguarding freedom of navigation.
The crisis has sharply reduced Iraqi oil revenue, which finances most government spending and public-sector salaries. The decline has also contributed to volatility in the dinar and a significant fall against the U.S. dollar.
Adapted and translated from the original Arabic.
