Economic Developments: U.S. Sanctions Impact on Iraqi Energy Sector
The British consulting firm FGE, in conjunction with Platts, has confirmed that the U.S. decision not to extend exemptions from sanctions against Iraq will include electricity imports from Iran, but will not extend similarly to gas imports.
Reports indicate that Iraq depended on Iran for approximately 22% of its total gas and electricity imports in 2024. Iranian electricity imports represented a modest 4% of Iraq’s overall energy consumption, according to statements released by the U.S. embassy.
“Exemptions will only apply to electricity imports. Gas imports could still be impacted if the U.S. deems Iraq’s payment methods to be in violation of the sanctions imposed on Iran,” the report emphasized.
The spokesman for Iraq’s Ministry of Electricity, Ahmed Moussa, stated, “Should the import of gas from Iran cease, Iraq could experience an electricity shortfall exceeding 30%,” highlighting concerns over supply stability.
Energy experts have warned that the expiration of exemptions, officially ended on March 7, will significantly challenge Iraq’s capacity to generate electricity, especially as the summer months approach and demand increases, prompting fears of public unrest similar to previous years, notably in Basra.
Implications of the Decision and Iraq’s Alternative Strategies
FGE anticipates that Iraq will struggle to compensate for the anticipated loss of electricity, predicting a reduction in Iranian gas imports to 70 million cubic feet per day in 2025, down from 820 million cubic feet per day. Iraq may attempt to alleviate the crisis partially by transitioning to the use of liquid fuel in place of gas.
In pursuit of alternative solutions, the Iraqi Ministry of Electricity has requested the Ministry of Oil to bolster gasoline imports to 100,000 barrels per day, up from the prior figure of 35,000 barrels per day ahead of the summer peak demand.
The government is also exploring diversification of electricity sources through an electrical interconnection project with Saudi Arabia and investing in associated gas capture projects for power generation.
U.S. Pressures and Iraq’s Response
For several years, the United States has encouraged Iraq to enhance its energy independence; however, previous exemptions were seen as essential for maintaining stability during this transitional phase.
U.S. National Security Adviser Mike Waltz affirmed in a statement that the decision not to renew the exemptions is part of a “maximum pressure” strategy employed by the U.S. government to diminish Iran’s regional influence.
Waltz urged the Iraqi government to foster cooperation with American firms to invest in the energy sector and called for better coordination with the Kurdistan Regional Government to resume operations of the pipeline between Iraq and Turkey, which has been closed for two years, amid growing U.S. pressure to resolve ongoing disputes between Baghdad and Erbil regarding oil exports.
Despite attempts at mediation, two rounds of negotiations between the Iraqi and Kurdish governments have yet to yield a resolution on the pipeline issue. Significant disagreements remain regarding the payment structure and contractual terms with companies operating within the region.
A source from one of the oil companies involved in the negotiations, who requested anonymity, indicated, “While disagreements between Baghdad and Erbil persist, there remains a viable path toward compromise.”
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