Commercial documents reviewed by the British business newspaper reveal the Baghdad government of Nouri al-Maliki, propped up by the United States, is under a one-year contract to provide the Damascus regime of Bashar Assad, which Washington wants dismantled, with 720,000 tons of fuel oil.
The Iraqi Oil Ministry made deliveries worth $14 million in June and July, cash on the barrel head, the Times said documents show.
An unnamed U.S. State Department official told the newspaper the shipments did not violate U.S. or EU sanctions. Still, the relationship didn't appear to sit well with Washington, the Times said.
"Perceptions matter, so we encourage countries trading with Syria to be open about their legal and non-sanctionable exchanges," a State Department official said. "If this is going to continue, we think the Iraqis should be up front about it."
Word of the fuel shipments comes a month after U.S. officials complained Iraq was allowing aircraft carrying Iranian arms to fly over its territory to get to Syria.
Iraq, which has embraced closer ties with Iran, abstained from last year's Arab League vote to suspend Syria's membership and impose sanctions.
Iraq gave Syria a great deal to boot, contract documents revealed -- 50 percent below market rate plus another $5 off per metric ton, the Times said.
The newspaper said its efforts to obtain comment on the contract from Iraqi and Syrian officials were fruitless.