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Iraq’s Energy Imports From Iran May Come To An End

  • Iraq may end gas and electricity imports from Iran within 3 years.
  • Iraq has historically been dependent on Iran for around 40 percent of its power needs.
  • Iraq is set to capture associated gas from its oil fields to generate power while at the same time reducing flaring practices.
Flare

Iraq’s recent announcement to end its importation of gas within the next three years will be carefully watched by Washington, as it would also mean the end to Iraq’s long-running dependence on Iran for gas supplies. In this context, when the U.S.-Iraq War ended in 2011, Washington wanted to keep open the possibility that it could rebuild its influence across the country, albeit in a more subtle way than had gone before. Part of this was to be done through acting essentially as Iraq’s lender of last resort, giving money to each new prime minister of Iraq who came asking for it regularly every year. The other part was trying to allow for a gradual weaning off in Iraq’s dependence on Iran for gas and electricity supplies - Iraq has historically been dependent on Iran for around 40 percent of its power needs. Washington hoped that by employing these two tactics, the historical broad and deep ties between Iraq and Iran might be reduced and that the U.S. might be able to reassert its presence in Iraq over time. 

The problem with the U.S. plan to date has been that Baghdad and Tehran have always known exactly what Washington was up to and has been manipulating it from the start. This was most obviously done in the securing of waivers from the U.S. for Iraq to continue to import gas and electricity from Iran. These waivers were granted to Iraq even after the U.S. had reimposed sanctions on other countries for continuing to deal with Iran after Washington had withdrawn from the Joint Comprehensive Plan of Action (‘JCPOA’) in May 2018. 

The Iraq method was, and remains, the following: whoever is prime minister of Iraq that year goes to Washington (usually in the summer, as the Iraqis prefer the Washington climate during that period) to ask for a huge amount of money to bail out Iraq’s budget. The budget needs bailing out – despite the huge oil and gas resources that Iraq has – principally because of the endemic corruption in the country. In return for the budget bailout and the granting of another ‘short-term’ waiver to import energy from Iran, the incumbent Iraqi prime minister promises the U.S. president that Iraq will gradually stop using Iranian energy imports for its power grid, as part of a broader initiative to reduce the power of Iran’s political, economic and military proxies in Iraq. The U.S. then gives Iraq billions more dollars to bail out its budget and also grants it another waiver to import Iranian gas and electricity for a set period (ranging upwards from 30 days). The Iraqis then bank the money and continue to import as much Iranian energy supplies as it was before, if not more. 

Related: BP’s CEO Warns Of Oil And Gas Price Spikes If Energy Transition Is Rushed

This ‘Baghdad Ballet’, as one source in the previous U.S. presidential administration used to call it, saw its fanciest moves under the ultra-smooth Mustafa al-Kadhimi. He had danced the usual dance with the U.S. so well that in May 2020 Washington gave him even more money than before and the longest waiver ever given – 120 days – to keep importing gas and electricity from Iran. Once the money had been banked and al-Kadhimi was safely back on home territory, Iraq signed a two-year contract – the longest to date – with Iran to keep importing gas and electricity from it.

The U.S. has many fine qualities but one of them is not tolerance when made to look stupid, so after the new gas and electricity supply deal had been signed between Iraq and Iran, the U.S. let the formidable State Department spokeswoman, Morgan Ortagus, out of her room, and she let fly. Not only was the next waiver to Iraq the shortest ever – 30 days – but also at the press conference in which it was announced, Ortagus also let it be known that the U.S. was hitting 20 Iran- and Iraq-based entities with swingeing new sanctions, citing them as being instruments in the funnelling of money to Iran’s Islamic Revolutionary Guards Corps’ (IRGC) elite Quds Force, which was entirely true. According to Ortagus, the 20 entities were continuing to exploit Iraq’s dependence on Iran as an electricity and gas source by smuggling Iranian petroleum through the Iraqi port of Umm Qasr and money laundering through Iraqi front companies, among other sanctions-busting activities, as analysed in full in my last book on the global oil markets. Washington was also extremely concerned that Iraq was continuing to act as a conduit for Iranian oil and gas supplies to make their way out into export markets in southern Europe and, in much greater volume, to Asia, especially China, as also analysed in the book.

In reality, Iraq could end its gas dependence on Iran relatively easily if it really wanted to. Iraq’s proved natural gas reserves total around 131 trillion cubic feet (Tcf), the 12th largest in the world, and there may be a lot more as the rate of exploration for gas reserves has not matched that for oil. Most of Iraq’s natural gas reserves are associated with oil in large oil fields in the south of the country and there have been occasional encouraging moves towards capturing this gas, rather than by just burning it off at the oil wells. For example, Baghdad signed up to the United Nations and World Bank ‘Zero Routine Flaring’ initiative - aimed at ending by 2030 the routine flaring of gas produced during the drilling of oil. At the time, Iraq flared the second largest quantity of gas in the world (after Russia) – some 17.37 billion cubic metres (bcm). At around the same time, Iraq’s Oil Ministry announced that it had signed a deal with U.S. engineering giant Baker Hughes to capture gas associated with oil from the Gharraf and Nassiriya oil fields.

The first stage of the Nassiriya plan, which would be similar for Gharraf, would involve an advanced modular gas processing solution being deployed at the Integrated Natural Gas Complex in Nassiriya to dehydrate and compress flare gas to generate over 100 million standard cubic feet of gas per (mmscf/d) of gas. The second stage would involve the Nassiriya plant being expanded to become a complete natural gas liquid (NGL) facility that would recover 200 mmscf/d of dry gas, liquefied gas and condensate. All this output would go to the domestic power generation sector, with Baker Hughes stating previously that addressing the flared gas from these two fields would allow for the provision of 400 megawatts of power to the Iraqi grid. The project, if Baker Hughes were allowed to just get on with it, would take around 30 months to be implemented. Similar development plans could then be rolled out for other major gas capture sites, which back in 2018 and 2020 included Halfaya (300 mmscf/d), and Ratawi (400 mmscf/d) in the first instance. 

Synergies could then be developed with the only major gas project that has made significant progress in Iraq over the years, the Basra Gas Company (BGC) project, orchestrated by British oil and gas giant, Shell, which owns a 44 percent stake in venture. The BGC was designed specifically to enable Iraq to increase its energy independence and to achieve economic diversification by capturing currently flared gas from the fields of Rumaila, West Qurna 1, and Zubair in the first phase. By 2019/2020, the BGC had reached a peak production rate of 1,035 mmscf/d, the highest in Iraq’s history and sufficient gas to generate approximately 3.5 gigawatts of electricity – enough to power three million homes. The BGC is also responsible for currently supplying around 70 percent of Iraq’s liquefied petroleum gas (LPG) and for enhancing Iraq’s export capabilities, which helped the country to become a net exporter of LPG from 2017. Back in June 2022, BGC exported its first semi-refrigerated liquefied petroleum gas shipment, from the BGC Umm Qasr jetty, as part of plans to boost the country’s LPG exports.

By Simon Watkins for Oilprice.com

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Leave a comment
  • Mamdouh Salameh on March 01 2023 said:
    I don’t bank on it until Iraq is able to provide gas from its own sources to replace gas imports from Iran. This means that Iraq will have, first and foremost, to clean its act by moving right away to create transparency in the country and eliminate corruption that has bankrupted the country and undermined its ability to attract foreign investments.

    There is however one telling fact from the recent past. Under the late Saddam Hussein, Iraq was able to provide electricity for the whole country even during the war with Iran and under US sanctions. How did he manage that? The answer is that there was no corruption in Iraq under Saddam because corruption wasn’t tolerated then and those caught in corruption cases would have been executed or thrown in prison for lengthy periods.

    However, I hasten to add that corruption at the highest level in Iraq started to creep back after the 2003 US invasion of the country. Twenty billion US dollars disappeared from Iraq’s Central Bank while the country was governed by the then American governor of Iraq Lewis Paul Bremer and are yet to be traced or accounted for. That amount could have contributed in no small measure towards financing the cost of the US invasion or for other purposes. So whatever money the US gives Iraq won’t offset the disappearance of $20 bn well into the future.

    And even if Iraq stops importing Iranian gas, this will in no way undermine Iran’s huge political influence over Iraq. After all Iran and China emerged as the real winners of the Iraq war. Whilst the United States won the military battles with its overwhelming military power against a far weaker country, China has become the largest investor in Iraq’s oil industry and the second largest importer of Iraqi crude while Iran has become the preeminent political power in Iraq. Both are working in tandem to eject the United States’ military presence from Iraq.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert

Leave a comment




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