Iraq could seek a waiver from the United States on sanctions on Iran because of its high trade with the neighbouring country and to protect its foreign reserves from penalties, an Iraqi government spokesman said on Friday.

The US government in December signed a law imposing sanctions on financial institutions dealing with Iran's central bank, the main channel for its oil revenues and the European Union has also announced a ban on Iranian oil shipments.

Iraq's Shi'ite-led government has moved closer to Tehran since the 2003 invasion and Iran is now Iraq's main trade partner after neighbouring Turkey.

Tehran said last year it planned to boost bilateral trade to $10 billion in 2011 from $6 billion in 2010.

"Iraq is considering a waiver from the United States in order not to violate any sanctions," Iraq government spokesman Ali al-Dabbagh said. "We are exposed to any penalties on countries not following U.S. sanctions."

Japan is also weighing a possible waiver on the new U.S. sanctions and is seeking ways to reduce its reliance on Iranian crude shipments.

Under the US law, the White House can exempt institutions in a country that has significantly reduced its dealings with Iran and in situations where a waiver is in US national security interest or necessary for energy market stability.

Iraq has $60 billion in foreign reserves, most of which are generated by its oil revenues. Countries and companies trading with Iran risk being barred from the U.S. financial system under the terms of the sanctions.

The US government has so far not been officially contacted on the waiver by Iraq, a US embassy spokesman said.

The Iranian sanctions are a delicate issue for Baghdad, which has strong political ties with neighbouring Iran and Syria, which is also facing international penalties.

The Islamic Republic now provides Iraq with fuel and electricity for its domestic market as well as imports of food, construction materials, petrochemicals and medical equipment. Iran has invested heavily in factories and power plants as part of Iraq's post-war reconstruction.

Baghdad has rejected Arab League calls for sanctions on Syria, it says in part because of Iraq's own experience with sanctions during the Saddam Hussein era.

Washington and Europe have moved to tighten restrictions on Iran in a bid to force Tehran to curb its nuclear programme, prompting Iran to respond with threats to close the Strait of Hormuz shipping line if sanctions stop it exporting crude.-Reuters