"This action will allow Iraq to use its own funds to render payment for Iranian electricity imports into restricted Iranian accounts in Iraq," a senior US State Department official told journalists, pointing out that Iran can only use these funds for humanitarian needs.

Because of US sanctions against Iran, Baghdad cannot pay Tehran directly for its gas.

To force Baghdad to pay its arrears, Tehran regularly suspends its gas supplies, which are essential for Iraq's power stations, since they cover a third of the country's needs.

Baghdad's unpaid bills to Tehran for past gas imports amount to some $10 billion, according to the senior official.