Iraq and Iran have begun exchanging crude oil, the Iranian oil ministry's news agency SHANA said on Sunday, in a deal that will position Tehran to expand its interests in its most important Arab ally in the face of growing pressure from Washington.
Crude from the Kirkuk field in northern Iraq is being shipped by truck to Iran. Tehran will use the oil in its refineries and will deliver the same amount of oil to Iraq's southern ports, on the Gulf.
After helping Iraq stifle a Kurdish push for independence last year, OPEC producer Iran positioned itself to take control of oil exports from the region's giant Kirkuk field.
Baghdad agreed for the first time to divert crude from Kirkuk province, which it retook from the Kurds, to Iran, where it will supply a refinery in the city of Kermanshah.
The pact is likely to create unease in Saudi Arabia, which along with its ally the United States accuses Iran of trying to dominate the Middle East. Tehran denies the allegations.
Iran is locked in a proxy war with Saudi Arabia that has fuelled instability in the region. As well as Iraq, it has been extending its influence in Syria, Yemen and Lebanon. Faced with the U.S. withdrawal from the Iran nuclear deal, Tehran is expected by analysts to focus on preserving its interests in neighbouring Iraq, where it is competing for influence with Washington.
Iran also faces a challenge from Iraqi Shi'ite cleric Moqtada al-Sadr. The nationalist's bloc secured a stunning victory in last month's election by tapping growing public discontent with Iran's sway in Iraq, and appealing to the poor.
Between 30,000 and 60,000 barrels per day (bpd) of Kirkuk crude will be delivered by the tanker trucks to Darreh Shahr in southwestern Iran, SHANA said.
Iraq and Iran plan to build a pipeline to carry the oil from Kirkuk to avoid having to use trucks.
The swap deal allows Iraq to resume sales of Kirkuk crude, which have been halted since Iraqi forces took back control of the fields from the Kurds in October 2017.
Even though talks between Baghdad and Tehran have been conducted between oil ministry officials and Chamber of Commerce, Iran's elite Revolutionary Guards are well positioned.
Those dealings are overseen by the desk responsible for Iran's investments in Iraq at the president's office and are run by the powerful force.
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