U.S. Pushes Iraq to Wean Itself Off Iranian Energy
Washington wants to drive a wedge between the two countries as part of an effort to curb Tehran’s influence
The U.S. is pressuring Iraq to sever extensive energy ties to Iran, enlisting American companies and allies such as Saudi Arabia to develop alternatives and drive a commercial wedge between Baghdad and Tehran.
The push is part of a broader American effort to curb Iran’s influence in Iraq, where a 900-mile border, economic ties and Shiite Muslim majorities have created closer ties between the former enemies since the 2003 U.S. invasion. Despite its position as a major oil producer, Iraq relies on Iran for natural gas that generates as much as 45% of its electricity.
The U.S. wants to use sanctions on Iran to pry Iraq out of Tehran’s orbit but fears it could weaken the country, which is only just emerging from a three-year war against Islamic State. Too much pressure could also backfire by ultimately driving Iraq closer to Iran, officials and analysts say.
The U.S. granted Baghdad a 45-day exemption from Iranian sanctions, allowing it to keep importing natural gas. But American officials acknowledge Iraq will need more time to wean itself off Iran’s power supply. Iraqi officials expect the waiver to be extended, perhaps for years.
“This is a challenge for us,” said Raid Fehmi, a prominent Iraqi lawmaker. “If [the U.S.] puts too much pressure, it could destabilize us which could destabilize the region. The Americans don’t want that.”
U.S. energy companies are pitching Iraq on ways to meet its own energy needs. In recent months, several have signed deals or made proposals to help Iraq, including by capturing gas from the country’s oil fields and upgrading its shoddy power network.
Last week, representatives of Excelerate Energy LP, a Texas firm, traveled to Baghdad to propose a floating liquefied natural-gas facility for Iraq in a meeting that American diplomats helped arrange, said officials involved in the discussions. But Iraqi officials have been reluctant to accept the proposal because they feel it is driven by U.S. interests, they said.
An Excelerate spokeswoman said such a floating terminal “could provide benefits to Iraq” but it was company policy not to discuss commercial opportunities.
Earlier this year, Iraq signed a deal with U.S. energy company Orion Gas Processors LLC to process natural gas extracted at its giant Nahr Bin Omar oil field and transform it into usable fuels. U.S. officials have lobbied the Iraqi government to award General Electric Co. a multibillion-dollar contract that would enable Iraq to meet its energy needs.
The U.S. also has asked Iran’s rival Saudi Arabia to invest in power and other infrastructure in southern Iraq, an American official said. Saudi energy minister Khalid al-Falih traveled to Baghdad this month and met with his Iraqi counterpart to discuss strengthening cooperation in the fields of energy and electricity, and also met with Iraq’s prime minister, Adel Abdul-Mahdi.
Sanctions pose a difficult balancing act for Iraq between its most important foreign allies.
A behind-the-scenes political battle between Iran and the U.S. over who would lead Iraq after elections this spring resulted in a compromise. Mr. Abdul-Mahdi, who doesn’t support sanctions on Iran but is nonetheless working to comply, became Iraq’s prime minister last month.
“Iraq does not wish to become part of a struggle to which it is not party,” Mr. Abdul-Mahdi said in a recent news conference, likening his country’s position on the sanctions to that of Russia, China and Europe.
Iraq has been exploring ways to pay Iran for natural gas without violating U.S. sanctions on dollar transactions. Iraqi officials recently floated the idea of paying with food and humanitarian supplies.
Energy independence from Iran “was in Iraq’s interest before it became a demand from any other side,” said Kadhim al-Hassani, an economic adviser to Mr. Abdul-Mahdi who led a delegation that negotiated sanctions relief with the U.S. The sanctions “accelerated our steps.”
It could take over a year for Iraq to develop new ways of generating or importing natural gas, said Sara Vakhshouri, president of Washington-based consulting firm SVB Energy International. Iraq imports enough electricity from Iran to power almost 1 million homes a year and buys 28 million cubic meters of Iranian gas every day—roughly the amount that Massachusetts consumes daily.
Other changes have happened more quickly.
American pressure has prompted a resumption of exports of around 50,000 barrels a day of oil from the northern Iraqi city of Kirkuk, which the U.S. wants flowing to compensate for Iranian crude exports curtailed by sanctions. Exports from the area have been curtailed for the past year because of a political dispute between the Iraqi government and its autonomous Kurdish region, which controls the only export pipeline to Turkey.
Iraq was until recently trucking around 30,000 barrels a day to nearby Iranian refineries and Iran in return was delivering the same quantity of its own oil to Iraq’s southern ports for export—an arrangement that made transporting the crude more convenient for both sides. That swap was halted just before the new U.S. sanctions on Iran came into force on Nov. 5.
Iraq’s reliance on Iranian energy was starkly illustrated this summer when protests convulsed the southern city of Basra, after Iran cut supplies of electricity, which it also provides to Iraq, over unpaid bills.
“We support Iraq’s efforts to develop its energy sector,” an official at the U.S. Department of State said. “The protests in Basra over electricity shortages earlier this year highlight the need for Iraq to reach energy independence.”