This week, President Hassan Rouhani's three-day Iraqi visit marks an important turning point in Iraninfo-icon-Iraqinfo-icon relations. Rouhani aims to boost bilateral ties and, simultaneously, circumvent suffocating U.S. sanctions. This much-anticipated visit, Rouhani's first as Iran's president, has important economic, security, and geostrategic connotations for both countries. It will likely herald a "new chapter" in cooperative relations between two neighbors sharing long borders and deep cultural, religious, and historic ties.

According to Iran's foreign minister, Mohammad Javad Zarif, during Rouhani's visit the two countries will sign a number of important memoranda of understanding pertaining to border transit, energy cooperation, joint industrial projects, and (the long-overdue) cleanup of the polluted waters of Shatt al-Arab water way (named Avardrood in Farsi). Iraq's President Barham Salih has attached great significance to Rouhani's "very important" visit by characterizing it as mutually beneficial. He said:

Iraq's interests lie in maintaining very good relations with Iran. I deliberately repeat this sentence several times. We Iraqis have an interest in strengthening these relations with Iran, and we must see them as a main issue among all our regional relationships. 

Another Iraqi politician, Sayed Ammar al-Hakim, the leader of Iraq's National Wisdom Movement, has proposed the idea of regional talks involving Iran, Iraq, Turkeyinfo-icon, Saudi Arabiainfo-icon, and Egyptinfo-icon, which Iran has welcomed as a way to use Iraq as a bridge to the Arab worldinfo-icon. In addition to meeting the Iraqi officials in Baghdadinfo-icon, Rouhani is scheduled to visit the holy cities of Karbala and Najaf and hold a meeting with the powerful Grand Ayatollah Ali al-Sistani.

The trip's timing, one month ahead of the renewal date for the U.S. sanctions waivers granted to Iraq (as well as a number of other countries), will make it all but impossible for the White House to refuse to extend those waivers to Baghdad, which has openly rebuffed Washington's pressure to cut its energy ties with Iran. Although Brian Hook, the head of the State Department's "Iran Action Group," has warned that the United Statesinfo-icon does not intend to renew these sanctions exemptions, the sheer dictates of U.S. Iraq policy will likely force another extension. After all, to paraphrase Acting Defense Secretary Patrick Shanahan during his recent Baghdad visit, Washington prioritizes Iraq's stabilization and shows at least nominal respect for "Iraq's sovereignty." To do otherwise would be to alienate the Iraqi political elite and the powerful pro-Iran groups and (parliamentary) factions who are all pressing for the withdrawal of U.S. forces from Iraq. 

In a certain sense, today's Iraq represents contested terrain for the U.S.-Iran rivalry in the region--including in Syriainfo-icon, where some Iraqi militia groups are reportedly assisting Iran. One of these groups is the Shiite militia Hezbollahinfo-icon al-Nujba, which the Treasury Department's Office of Foreign Assets Control recently designated as terrorist. Hezbollah al-Nujaba is an offshoot of the Asaib Ahl al-Haq, a militant faction of Iraq's Hashd al-Shaabi group. Established in 2014 to fight the Islamic Stateinfo-icon, the Hashd al-Shaabi--a predominantly Shiainfo-icon fighting force--was formally incorporated into the Iraqi armyinfo-icon in 2017. According to the Israeli press reports, al-Nujba helped Iran establish a supply route to Damascus via Iraq, thus undermining Americainfo-icon's strategy to block Iran's energy routes. Last month in his Baghdad visit, Foreign Minister Zarif boasted of Iran fighting alongside Hashd al-Shaabi.

It's unclear whether Washington will designate the entire Hashd al-Shaabi, which consists of several dozen groups, as terrorist, given the group's recent denunciation of Trump's controversial statement in February that U.S. forces in Iraq will keep a watch on Iran. Also unclear is if the White House will penalize Iraq for defying its will and establishing closer ties with Iran.

Strengthening banking ties with Iraq is a top priority of Rouhani's visit. Iran's Central Bank governor, Abdulnasser Hemmati, recently stated that the two countries are planning euro and dinar-based economic transactions, which have jumped from $2 billion a year eight years ago to over $12 billion today, and are expected to jump to $20 billion in two years. Last month, Hemmati and his Iraqi counterpart inked an agreement to develop a payment mechanism to facilitate banking between the two countries.

Indeed, interdependence is rapidly growing. Iran, for instance, exported $8.3 billion worth of non-oilinfo-icon commodities to Iraq during the first 11 months of the Iranian calendar year (March 2018-February 2019), a rise of 54 percent and 45 percent in tonnage and value respectively. Iran is Iraq's third largest trade partner and the new deals to be signed during Rouhani's visit will reassure Tehraninfo-icon that Baghdad is serious about not being "party to the system of sanctions against Iran," as Iraqi Prime Minister Adel Abdul Mahdi said in his meeting with an Iranian delegation in February.

Despite Baghdad's good intentions and its determination to remain neutral in the current Iran-U.S. standoff, the Iraqi government is in a tight spot and is worried about the consequences of alienating Washington. So, for instance, Iraq revoked the Kirkuk deal, under which Iran and Iraq traded 11,000 barrels of oil a day, because of U.S. pressure, according to Iran's oil minister, Bijan Zanganeh. On the other hand, Baghdad just renewed a contract to import electricity via Tavanir, an Iranian company that transports and distributes electric power. Last year, Iraq imported 154 million cubic feet of natural gas from Iran in addition to 1,300 megawatts of electricity.

An important barometer of Iraq's delicate balancing act between the United States and Iran is the issue of joint energy fields. Iran shares at least five oil fields with Iraq. Data from the Iranian Oil Ministry indicate that production from the fields bordering Iraq, including the South Yaran oil field, amounts to about 300,000 barrels per day, with estimated annual revenue of about $5 billion. Hampered by the shortage of capital and technologyinfo-icon to invest in the joint fields, Iran is considering inviting Russian oil companies to facilitate these projects, assuming that the latter are willing to take the risk of backlash from U.S. secondary sanctions.

Should Tehran and Baghdad sign important energy agreements during Rouhani's visit, as hinted at by officials of both sides, then they will significantly compromise U.S. attempted to sever Iraq's ties with Iran. The futility of U.S. pressure on Iraq over Iran should serve as a fresh reminder of the fundamentally questionable nature of Trump's one-dimensional and confrontational Iran policy. This effort to demonize Tehran as a force of subversion with respect to its neighbors flies in the face of the opposite reality: the increasingly powerful and mutually beneficial relations between Iran and Iraq.