Iran cannot compete with the US when it comes to volume, price or quality, in arms sold to Iraq. In the last 4 years, the US has brokered shipments of more than a million small arms and hundreds of tons of ammunition into Iraq. Since most of these go into the hands of civilian militias, there is little control over where the weapons end up. There are plenty of good, serviceable, well maintained weapons among the national security forces of our Eastern European allies. They are eager to sell off Soviet era armaments and rearm with newer, more advanced designs. Some of these countries are ramping up their domestic arms industries and can supply Iraq with good quality, new weapons. All use standard Soviet ammunition types, which are proven effective and universally available.
The US has lots of old M16s but nobody wants those. They're pieces of shit. They break, bend, foul and jam. The bullets are small and not very powerful. What a shame. Be nice if somebody could get some use out of them and we could get some money for them.
Anyway, it's been a good deal for everyone. Iran doesn't have that kind of weapons production capacity and they have other obligations. The Iraqis love guns of all kinds, up to and including portable missile launchers. They are not shy about using them. The Sunnis and Kurds are warrior peoples, they love to fight. The Shiites are learning.
What does it matter that we are providing most of the arms to both sides of the Iraqi civil war? They would be fighting anyway and we are just expediting things. We only want the best for them, not like the Iranians or Russians, who just want to exploit their oil wealth and use them as a base for Middle Eastern imperialism.