Iran offers Iraq $1 billion loan before Ahmadinejad visit

TEHRAN (Reuters) - Iran is offering a $1 billion loan to Iraq for projects to be handled by Iranian firms, an Iranian official said on Friday, two days before a landmark visit by Iran's president to Baghdad.

Mahmoud Ahmadinejad will make the first trip by an Iranian president since the 1979 Islamic revolution, a visit analysts say will aim to tell the United States that Tehran is an influential player in its neighbor which cannot be ignored.

Iran and Iraq fought an eight-year war in the 1980s that left about a million dead but relations -- and Iran's influence in Iraq -- have increased substantially since the U.S.-led invasion in 2003 that toppled Iraqi leader Saddam Hussein.

Ahmadinejad is due to start the two-day trip to build on business and political ties with Iraq on Sunday.

"Iran's $1 billion loan to Iraq has been one of the main issues of discussion with the Iraqi side," Iranian Deputy Foreign Minister Alireza Sheikh-Attar said in Baghdad.

The loan will cover basic projects to be executed by Iranian contractors using Iranian goods and equipment, he said in the report carried on the state broadcaster's Web site.

The United States has accused Iran of funding, training and equipping Iraqi militias in a bid to destabilise Iraq, a charge Tehran denies, blaming the U.S. troop presence for instability. Iran says it wants a stable neighbor and U.S. troops out.

Iran and the United States, which have not had diplomatic relations for almost three decades, have held three rounds of rare face-to-face talks in a bid to quell the violence. Iran put off a fourth round because of unspecified technical issues.

PIPELINE

Sheikh-Attar said three other agreements were being discussed, covering avoidance of double taxation, support for joint investment and customs cooperation.

"Representatives of the two countries are also discussing agreement on the Abadan-Basra oil pipeline," he said, referring to Abadan in southwest Iran and Basra in southern Iraq, cities which are both near the shared border.

In September, an Iraqi official cited a plan to build a pipeline from Basra to Abadan refinery that would initially export 100,000 barrels of oil per day. Both states are members of the Organisation of the Petroleum Exporting Countries.

Sheikh-Attar said five to 10 agreements would be signed by Ahmadinejad during his trip.

An Iranian Industry and Mines Ministry official, Mohsen Shaterzadeh, said discussions with Iraq would include plans for joint companies in cement, car manufacturing, food, textiles, petrochemicals and agriculture.

Banks from the two states would discuss setting up a joint venture bank, Shaterzadehi said, identifying the institutions involved as Iraq's Rafidain Bank, Export Development Bank of Iran and Iran's Bank Tejarat.

Several Iranian banks have been targeted by U.S. and U.N. sanctions imposed over Iran's disputed nuclear program, but not the Iranian banks cited in the Web site report.

Iran and the United States are locked in a row over Tehran's nuclear plans, which Washington fears are aimed at building atomic bombs. Tehran denies the charge, saying it wants to master technology to generate electricity.

(Writing by Edmund Blair; editing by Matthew Jones)