According to a State Department official, the US has given Iraq another 120-day sanctions waiver, allowing it to continue cross-border energy imports from Iran without incurring penalties.
Industry publication Iraq Oil Report cited a written statement by the official, stating that the waiver will allow Iraq to pay for electricity imports from Iran.
The waiver guarantees Iraq's short-term energy demands are met while actions are taken to minimize its reliance on Iranian oil imports.
Iraq requires more than 23,000 megawatts of electricity to meet domestic demand, but years of war following the US invasion in 2003 have left the country's power infrastructure in shambles, with a 7,000-megawatt shortage.
To allow Baghdad to acquire Iranian energy, the US has had to routinely extend sanctions exemptions by 45, 90, or 120 days, but it is unhappy with the close ties and trade between Baghdad and Tehran.
Baghdad officials have previously stated that there is no straightforward substitute for Iranian imports because building up Iraq's energy infrastructure would take years.
They claim that the US demand does not take into account Iraq's energy demands or the complicated relationship between Baghdad and Tehran.
Gas imports from Iran account for up to 45 percent of Iraq's daily electrical use of 14,000 megawatts. Iran sends another 1,000 megawatts straight to its Arab border, making it an unavoidable energy supply.