The State Department issued a second three-month exemption from Iran sanctions for Iraq, mindful not to destabilise the war-torn country increasingly reliant on Iranian gas and electricity to cope with chronic blackouts that have triggered unrest.
"While this waiver is intended to help Iraq mitigate energy shortages, we continue to discuss our Iran-related sanctions with our partners in Iraq," a State Department official said.
The official said that increasing Iraq's capacities and diversifying imports "will strengthen Iraq's economy and development as well as encourage a united, democratic and prosperous Iraq free from malign Iranian influence."
Despite Washington's repeated warnings, Iraq since the fall of Saddam Hussein has walked a fine line and maintained warm ties with Iran, with which Iraq's majority Shiite community shares religious affinities.
Iranian President Hassan Rouhani paid a visit last week to Iraq, where he highlighted Tehran's support in battling the Islamic State extremist movement and said that the United States was "despised" in the region.
Last year, US President Donald Trump pulled out of an international deal on curbing Iran's nuclear program that was negotiated by his predecessor Barack Obama.
Trump instead imposed sweeping sanctions on Iran as he seeks to reduce the regional role of the Shiite clerical state, a foe of US allies Saudi Arabia and Israel.
But the US approach has met strong opposition, with European powers encouraging their companies to stay present in Iran so as to safeguard the denuclearisation accord.