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Trump administration works on Iraq sanctions, but analysts warn of consequences

Highlights

Potential targets under discussion, imposition uncertain

Iraq's oil, gas sectors could face penalties

US imports of Iraqi crude in decline

Washington — Following President Trump's warning earlier this week, administration officials are in the preliminary stages of developing sanctions on Iraq, a path the president could legally set upon but could create practical consequences with no clear benefits, sources familiar with the initial work said.

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The potential targets of these sanctions, which have been the focus of this work so far, have yet to be decided, and it remains unclear if any sanctions will ultimately be implemented, these sources said.

Analysts said that sanctions on US imports of Iraq oil might be considered, but viewed this as a very unlikely outcome.

"If the US government did impose sanctions on Iraq, it could name the Iraqi officials responsible for a decision to require the US military to leave Iraq," said Elizabeth Rosenberg, director of the energy program at the Center for a New American Security and a former senior sanctions adviser at the Department of the Treasury. "Or, US sanctions on Iraq could go after Iraq's most important economic resources, including its energy sector."

Ben Van Heuvelen, editor-in-chief of Iraq Oil Report, said the administration could also allow a waiver allowing Iraq to import Iranian electricity and natural gas despite US sanctions to expire in February.

"Until a few days ago, I would've told you there's a 98% chance of renewal," Van Heuvelen said. "Now, you'll have a lot of voices in the Trump administration asking anew why we should be helping Iraq transfer $4 billion to Iran every year."

The waiver was extended by 120 days in October.

'A HORRIBLE IDEA'

Rosenberg called any sanctions targeting Iraq's energy sector "vindictive and counterproductive."

"It's appalling to think of the United States beating up on an ally with these economic measures, casting aside any number of more readily available and appropriate diplomatic measures that could be used to advance US interests in the region," she said. "Using sanctions to break up with Iraq before Iraq can break up with the United States is a horrible idea."

Richard Nephew, the principal deputy coordinator for sanctions policy at the US State Department during the Obama administration, said under the International Emergency Economic Powers Act, Trump could legally impose sanctions on Iraq's oil and gas sector and could bar US companies from doing business with Iraq's government.

"I mean, they really could go in a number of directions," Nephew said. "IEEPA does not create limits."

Still, Nephew said he expected targeted measures on only a select number of Iraqi officials, if sanctions were imposed at all.

"I think that the Administration is doing what they need to do to respond to the Commander in Chief, but I expect them to try to talk him out of it and to be successful by showing this would harm us in Iraq more than anything else," Nephew said.

Following the US killing of top Iranian commander Qassem Soleiman Friday, Iraq's parliament voted to expel US-led coalition troops, drawing the sanctions threat from Trump.

"If they do ask us to leave ... we will charge them sanctions like they've never seen before ever," Trump told reporters Sunday. "It'll make Iranian sanctions look somewhat tame."

In a speech Wednesday, in response to an Iran attack on two Iraqi military bases, Trump said the US would impose new economic sanctions on Iran, but did not repeat his threat against Iraq. He did, however, claim that the increase in US oil and gas output has negated the need for Middle East oil.

FALLING US IMPORTS

US crude oil imports fell to nearly 6.24 million b/d in October, the lowest monthly average in 26 years, but foreign crude still makes up a sizeable portion of domestic refiner crude slates, according to the US Energy Information Administration.

US refiners imported more than 252,300 b/d of Iraqi crude in October, down from a peak of nearly 802,800 b/d in April 2018, according to EIA.

US refiners import both medium and heavy sour crudes from Iraq, although the balance of these imports has shifted in recent months. For example, US imports of medium Iraqi crude to the Gulf Coast fell from 430,000 in July 2017 to nothing in October, EIA data showed. Meanwhile, US West Coast imports of medium Iraqi crude increased to about 256,200 b/d in September, up from nothing two years earlier.