From a purely economic standpoint, the decision to use Iranian finance for the $2.5bn Rumaila independent power project (IPP) is slightly illogical.
Irans Mapna Group is technically more than competent to carry out the engineering, procurement and construction works on the 3000MW IPP. It has a track record in Iraq following work on Najaf and Baghdad Al-Sadr power plants.
It is Irans financial sector which will struggle to come up with billions of dollars. Banks were strangled by EU sanctions preventing them from carrying out international transactions. Poor risk assessment policies and a struggling economy have left banks overextended and burdened by non-performing loans.
The government is also short of ready money. It has been battered by sanctions for years, preventing it from accessing foreign assets. The fall in oil prices has also constrained its finances.
If the transactions are completed before sanctions are lifted, Iran will have to dig deep to come up with billions of dollars for a power project in another country, no matter how desperately it is needed.
The timing of the deal is the key to understanding it. It comes just after the nuclear deal between Iran and the P5+1. Some observers see the deal as a green light for Iran to increase its involvement in Iraqs internal affairs, which goes much further than fighting the Islamic State.
Iraqs government is also under unprecedented pressure from the populace over its failure to provide basic services, of which electricity is the biggest flash-point. Even Shia-majority areas were protesting en masse during the August power cuts.
The financing deal is not the start of a new trend, where Iran tries to enter projects markets in the Arab world. It is a political decision to support the Iraqi government through investment. This will continue as long as instability in Iraq threatens Tehrans interests.