By Timour Azhari and Ahmed Rasheed
Sept 28 (Reuters) - US President Donald Trump's administration was set to grant a limited waiver to its Iran sanctions program on Monday to allow for flights carrying Shi'ite Muslim religious pilgrims between Iran and Iraq, a person with direct knowledge of the matter said.
The source, who is involved in the deliberations, said the US Treasury Department waiver would allow Iraqi Airways to fly back and forth between Iran and the Shi'ite holy city of Najaf in Iraq for one month, with a more permanent waiver potentially following.
Iraq halted flights to and from Iran on Friday, in line with US sanctions.
The source said the move aimed to ease pressure on the Iraqi government of Prime Minister Ali al-Zaidi, who has sought to deepen ties with Washington while also balancing a strong relationship with Iraq's influential neighbour, Iran.
Trump's effort to impose a crippling economic blockade on Iran is forcing regional governments to scale back ties with Iran, creating potential backlash against those states, particularly those that balance their ties with both Washington and Tehran.
Zaidi's office over the weekend said that Iraq was seeking an exemption for travel between Iran and Iraq for medical treatment, education and pilgrimage.
An Iraqi official said the Iraqi government was in talks with the US about the Najaf exemption and expected flights between Iran and Najaf to resume within 48 hours.
The US State Department referred questions to the Treasury Department, which did not immediately respond to a request for comment.
In recent days, countries including Turkey, the UAE and Iraq have cancelled direct flights with Iran as a result of US pressure. In response, Iranian officials have threatened to halt regional air travel if Iran's air links continued to be cut.
With Shi'ite religious pilgrims travelling between Iran and Iraq each year to visit key shrine cities, Iraq is perhaps in the most sensitive position.
Najaf, a center for religious study, draws millions of pilgrims a year to the shrine of Imam Ali, the first Shi'ite leader, and the world’s largest and oldest active Islamic cemetery.
The source said that barring flights between the two countries could cause severe backlash against Iraq's government by uniting Shi'ites who follow Iran's supreme leader and those who follow Iraq's Grand Ayatollah Ali al-Sistani, undermining US efforts to reduce Iranian influence in Iraq.
Zaidi has offered to provide safeguards for the flights, including rigorous screening and information sharing as well as ensuring the flights are not used for transfer of weapons, sanctioned individuals or illicit money, the source said.
(Reporting by Timour Azhari in Geneva and Ahmed Rasheed in Baghdad; Editing by Andrew Heavens and Cynthia Osterman)
