BAGDAD: Iraq insisted Monday that its trade with Iran was honest, denying reports that it was helping the Islamic republic skirt sanctions by smuggling oil and moving cash in secret.

Ali Mussawi, spokesman for Iraqi Prime Minister Nouri al-Maliki, said Baghdad’s trade and dealings with Tehran were below “the permitted level” for neighboring countries and dismissed claims that Iraq was selling oil on Iran’s behalf as a “big lie.”

“We are dealing with Iran in a public and transparent fashion, we have not done any secret deals,” Mussawi told AFP.

“We feel that we have dealt with Iran less than the permitted level.”

He said of enforcing sanctions against Iran: “There is always a permitted level for neighboring countries.

“International officials and Americans always emphasize that the international sanctions on Iran do not apply to Iraq for many reasons.”

The New York Times reported on Sunday that Iraq was carrying out an array of tasks within a network of financial institutions and oil-smuggling operations that have helped funnel cash to Iran as sanctions choke its economy.

Mussawi, however, insisted that Iraq’s central bank was an independent institution and was not subject to Maliki’s orders, and said of the Times’s claims Iraq was selling oil on Iran’s behalf: “This is a big lie.”

But he added that some oil was being smuggled through Iraq’s autonomous northern Kurdistan region, which he said was not only breaking sanctions, but also infringing on Iraq’s sovereignty.

“We have warned about this from the beginning,” Mussawi said.

Oil smuggling via Kurdistan “is not only breaking sanctions, but Iraqi oil is being smuggled out of the country, and not through Iraq’s main pipelines.”

Iran and Iraq, which fought an ’80-’88 war that was one of the bloodiest conflicts of the past century have drawn closer since the U.S.-led invasion of 2003.

U.S. sanctions, and others imposed by the EU, aim to pressure Tehran to halt its nuclear activities, which the West fears are geared to developing weapons. Iran denies its program is anything but peaceful.