Why has the US allowed Iran access to billions of dollars now?

Soon after Hamas attacked southern Israel on October 7 and Tel Aviv responded with indiscriminate aerial bombardment of Gaza, almost every analyst and news outlet was fixated upon how Iran will respond to the crisis.

Iran has long funded and armed proxies in the Middle East including Houthis in Yemen and Hezbollah in Lebanon. US officials also accuse Tehran of financially backing Hamas, which has been governing Gaza since 2007.

While the administration of US President Joe Biden has on record said that it has not seen any intelligence that directly links Iran to the latest Hamas attack, a recent decision to give Iran access to billions of dollars in held-up funds has raised eyebrows.

On November 14, the US issued a 120-day waiver allowing Iraq to pay for electricity bought from neighboring Iran. The payments in question come to around $10 billion, which US officials insist can only be used by Iran to buy humanitarian goods such as medicines.

“I think the White House is trying to signal to Iran that there are still places they can work together. That there are still functioning relations between them,” says Ryan Bohl, a senior Middle East and North Africa analyst at the RANE Network, a global risk intelligence firm.

“In spite of this potential regional escalation caused by the Gaza War,” he tells TRT World.

Over the past few weeks as Israel has intensified military assault on the Palestinian enclave, killing more than 11,000 people. At the same time, Iran-backed militias in Iraq and Syria have ramped up attacks on American soldiers stationed there - even though none of them have been seriously injured.

The Biden administration faced immediate pushback from Republicans and anti-Iran hawkish analysts over the news of release of funds.

“President Biden deserves great credit for supporting Israel’s campaign to destroy Hamas. President Biden deserves strong condemnation for greenlighting the funding of the Islamic Republic of Iran, the main financier of and weapons supplier for the horrific October 7 attacks on Israel,” Mark Dubowitz, CEO of pro-Israel think-tank Foundation for Defence of Democracies, said in a statement.

“It is beyond belief that he would make available $10 billion for a regime that will turn around and use this money to wage war against America and Israel.”

The US has imposed stifling financial sanctions, especially targeting Iran’s energy exports, making it difficult for banks to wire money to Tehran’s accounts.

Iraq received an identical waiver in July to clear the $10 billion dues it owes to Iran under the head of electricity purchases. It’s unclear how much of that money Iran has been able to withdraw.

The money is supposed to be deposited in Iranian accounts at Iraqi and Omani banks and payments will be processed in Euros.

Iraq imports gas and electricity from Iran to meet 40 percent of its power needs.

Ensuring uninterrupted supply of electricity during sweltering Iraqi summers becomes a big headache for politicians who have to deal with street protests.

Iran has periodically reduced exports of gas, which Iraq uses to run power plants, to put pressure on Baghdad to clear the payments backlog.

“There really isn't a work around for the United States, even under (President Donald) Trump for Iraq's electricity sector,” says Bohl.

“Iraqis need to have that connection with the Iranians to keep their lights on and that is an imperative for the Americans to ensure that Iraq has a level of electricity.”

Washington’s decision on the Iraqi payments came weeks after US officials said they were blocking Iran’s access to $6 billion held at a Qatari bank. That money is the payment that South Korea is supposed to pay for purchase of Iranian oil.

Since none of the South Korean banks would deal with Iran directly, the funds were transferred to Qatar under a US-approved arrangement, which was agreed to by all sides in exchange for five American citizens who were released from Iran’s custody in September.

The US denied Iran access to those funds days after the October 12 attack.

As protests in the region grew in response to Israel’s indiscriminate bombings in which thousands of civilians including over 4,700 children were killed, the US increased its military presence, which includes deployment of two aircraft carriers, in the Middle East to deter any retaliation against Israel.

But Bohl says the presence of US troops in the region was largely for the purpose of “deterrence”.

“So the idea behind sending those extra troops is to convince Hezbollah and Iran that strategic escalations against Israel have too high a cost and that attacks against US troops will have a credible response,” he says.

Bohl also points out that US troops in the region at the present number around 45,000-50,000 compared to 650,000 personnel when it launched Iraq’s invasion in 2003.

“The military presence reduces the potential that Iran, particularly under the influence of hardliners, might miscalculate and decide to carry out an attack.”