An Iraqi man fuels a generator to provide electricity to private homes in Baghdad, Iraq, July 12, 2022 (AP)

Iraq will have 120 days to pay for Iranian electricity via non-Iraqi, third-party banks, a US official said after the United States signed a waiver giving the country around four months to carry out the required transactions.

Iraq is extremely reliant on Iran for electricity, and there are restrictions on the transactions in Baghdad when it comes to this issue. US Secretary of State Antony Blinken signed a 12-day national security waiver that would allow Iraq to deposit payments into non-Iraqi banks in third countries instead of into restricted accounts to Iraq, an official told Reuters on condition of anonymity.

The waiver signed by Blinken will include payments to banks outside of Iraq at the request of the Iraqi government to mitigate pressure from Iran about the money.

"We have to help the Iraqis with this perennial pressure from the Iranians to access the money," the official said.

"The Iraqis have requested, and now we have agreed, to expand the waiver," he added.

The US official said this might help ensure better compliance with the US requirement that any disbursements be for humanitarian purposes, as Washington claims that Iran would impose black-outs on Iraq if the money is not paid.

"It also helps the Iraqis, at least somewhat, to have an argument to make (to Iran) that they are not in control of the money that they have paid (into non-Iraqi accounts)," he added, as per Reuters.

The restrictions on transactions between Iran and Iraq are due to the harsh US sanctions imposed on Iran in 2018 after then-US President Donald Trump withdrew the country from the Iran nuclear deal that had been struck in 2015 with China, Russia, the United Kingdom, France, and Germany.

Trump not only threw the deal out of the window but also imposed a policy of "maximum pressure" on the Islamic Republic to try and coerce it into accepting further restrictions on its nuclear program.

Iranian-Iraqi relations were not affected despite the sanctions. On May 13, Iranian Oil Minister Javad Auchi announced that the two countries signed a memorandum of understanding between Iran and Iraq on the development of oil and gas fields.

Days earlier, Iranian President Ibrahim Raisi stressed the importance of the Memorandum of Understanding between Iran and Iraq, describing it as very "important" for the security of the two countries.

Iraq relies on Iran as a major energy supplier, while Iraqi officials face harsh criticism in the oil-rich country whose citizens suffer from frequent power outages.

Read next: Iraq to buy more gas from Iran

Earlier in the year, Iraqi Electricity Minister Ali Fadel said his country was in the process of finalizing a contract to buy gas from Iran in the coming summer.

Iraq requires 35,000 megawatts to ensure a 24-hour electricity supply during summer. Iraq's electricity production is currently at 15,600 megawatts, and citizens have daily access to 18 hours of electricity.

The Iraqi Ministry of Electricity is ready to sign an agreement with Iran to buy the required amount of gas for the summer season, which will add to Iraq's supply of 7,000 megawatts of electricity, Baghdad had said earlier.

The minister also mentioned that Iraq's contracts with Siemens and General Electric will enter the implementation phase as of March. As a result, Siemens will produce 1,400 megawatts of electricity at the Beiji power plant and 600 megawatts at the Dhi Qar power plant during the first phase, while General Electric will produce 3,000 megawatts.