Measuring the effect of harsher US sanctions against Iran

The US decision to end waivers for countries that want to bypass sanctions on Iran to purchase oil has put Iraq in a potentially precarious position. US President Donald Trump’s move, which came one year after he withdrew from the monumental 2015 nuclear deal with Iran, went into effect on 2 May and aimed to reduce Tehran’s oil exports to zero.

However, Iraq continues to import natural gas and electricity from Iran under a US waiver that is set to expire in mid-June. These imports from Iran are crucial for keeping the lights on in Iraq. US Secretary of State Mike Pompeo recently told Iraqi officials that Washington would renew Baghdad’s waiver, but an official decision has yet to be made. This combined with complicated politics in the region – exacerbated by the recent volatile tit-fortat between the US and Iran – have called into question how Iraq will move forward and whether it will turn to other neighbours to meet its needs.

Iraq’s dependence on Iranian electricity

Iraq’s electricity grid has not yet recovered from years of war and without Iranian electricity and gas to generate it, the country’s ability to keep the power on would likely be crippled. The US administration was clear that its recent move targeted Iran’s oil exports, which pump a substantial amount of revenue into Tehran’s economy.

Iraq’s energy imports appear to remain an exception, as it is now the only country exempt from US sanctions on Iran. Ibrahim Bahr al-Ulum, Iraq’s former oil minister, reported that “the US has no other option but to grant Iraq renewed waivers from its sanctions on Iran”. “The waiver is not a US favour, as Washington is the country to be blamed for the deteriorating conditions of electricity in the country,” he said. The country imports 28m cubic feet of natural gas from Iran daily to feed power plants, a figure that will rise to 35m cubic feet in June. Tehran also provides Baghdad with 1,200 megawatts of electricity. The former oil minister said that Iran’s gas and electricity contributions to Iraq “generate 25 per cent of the country’s electricity”.

The necessity of Iran’s electricity exports to Iraq became apparent last summer. Citing its own domestic needs and Iraq’s failure to pay the bill, Iran cut its electricity exports, which contributed to more frequent power cuts during a summer already plagued by water shortages.

“If Iraq was not exempt from US sanctions, it would face a huge disaster, as the country already suffers from a state of complete paralysis with regards to electricity,” the former deputy head of the Iraqi parliament’s economic and investment committee, Hareth al-Harethy, told the BBC. However, Harethy noted that “Iraq is trying to return the favour to Iran by continuing to import gas and electricity from Tehran because it supported Baghdad during its war against the Islamic State group”.

Hamza al-Jawahry, a renowned Iraqi oil and energy expert, reported that Iraq seeks to increase electricity and gas imports from Iran “to provide its citizens with 20 hours of electricity a day” starting this summer. “If Iran’s energy exports are cut, this would have a dramatic effect on the Iraqi people, especially during the next summer,” Jawahry said.

But Iraq’s reliance on Iranian imports in the future may change as it continues to work towards rebuilding its electricity system. In late April, with Germany’s Siemens to upgrade the Iraq signed a $14bn deal country’s power grid. Baghdad is also believed to be in talks with Siemens’ rival company, the US-owned General Electric (GE), on several contracts worth billions. Ulum stressed the importance of the Siemens contract, saying that the German company is in a position “to put an end to Iraq’s suffering”.

Harethy also stated to the BBC that Siemens “will change the country’s infrastructure and add new generation units”. However, Ulum and Harethy noted that the US put pressure on Iraq to sign a deal with GE, which could provide insight into how Iraq sits at the centre of a tug-of-war between the US and Iran.

Shifting in geo-political alliances as a means to overcome sanctions

As part of its attempts to tackle its electricity deficit, Iraq signed a deal with Saudi Arabia – Iran’ s regional arch-rival – in April to connect their electricity grids. Media reports said the US was behind the deal, which it hopes will offer Iraq an alternative partner for electricity. Jawahry agreed, saying: “The US pushed Saudi Arabia to accelerate its electricity linkage with Iraq in an attempt to contain Iraq and keep it away from Iranian hegemony.” “Saudi Arabia has a huge surplus in electricity and they can help Iraq in this field,” Ulum said, although he noted that technical problems stand in the way of achieving this swiftly. Although the US has a history of pressuring Iraq into situations, it would be difficult to pull Iraq and Iran apart.

Iran remains an influential player in Iraq, from its support for the Shia-led paramilitary Popular Mobilisation Forces to its mingling in Iraqi politics. Iranian President Hassan Rouhani visited Iraq in mid-March and signed several agreements to boost cooperation as US sanctions continue to take a toll on Tehran.

Iraq to benefit from sanctions?

Despite strong Iraq-Iran relations, Baghdad could also stand to benefit from the recent US move to tighten sanctions on Tehran. After the US ended the waivers on sanctions, Turkey – a major importer of Iranian oil – said it would seek to buy more crude from other suppliers, particularly pointing to Iraq.

Turkey said it would look into increasing its oil shipments from Iraq via an existing pipeline that runs between Iraq and the Turkish city Ceyhan. This would likely not happen anytime soon, as the pipeline needs to be extensively repaired. The issue still topped the agenda during meeting between the Iraqi prime minister and the Turkish president in Ankara on 15 May.

However, Iraq’s former oil minister said he doubts this would happen. “Iraq will commit to its production quota as per the decision of OPEC,” Ulum said, adding that “there will be a major problem if Iraq agrees to increase its oil exports to Turkey away from the OPEC”.

Iraq’s current oil minister, Thamer Ghadhban, said on 16 May that he plans to ask for OPEC to reassess member states’ commitment to a deal on reducing oilput during an upcoming meeting.
Ghadhban said that this is in direct response to Turkey’s suggestion for increasing oil imports
from Iran.

But Harethy suggested that “Turkey would not increase its oil imports from Iraq, as Iran’s exports to Turkey will continue via legal and illegal ways”. Given Iraq’s position in the growing tension between the US and Iran, Baghdad may still be forced into a position to become more reliant on its own abilities rather than external help. But Ulum noted that it may still be several years before Iraq can stop importing energy from Tehran.

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