Economic Insights – Baghdad
The U.S. State Department has urged Iraq to expedite its efforts to eliminate dependence on Iranian energy sources, coinciding with Washington’s announcement of intensified sanctions against Tehran.
Responding to inquiries about the renewability of exemptions afforded to Iraq, the Ministry of Foreign Affairs stated that it is currently reviewing all granted exemptions, as reported by various sources.
Currently, Iraq has an electricity production capacity of 27,000 megawatts, primarily derived from gas-powered stations. However, output can occasionally drop to as low as 17,000 megawatts.
Even at peak capacity, this level of production falls short of the nation’s energy requirements, which necessitate an increase to approximately 40,000 megawatts to ensure a continuous supply throughout the day.
To manage this energy deficit, Iraq has resorted to importing Iranian gas, a situation that risks exposure to U.S. sanctions. However, the U.S. has periodically granted exemptions to these sanctions.
With the potential return to power of U.S. President Donald Trump, who has committed to implementing a “maximum pressure” strategy toward Iran, the Iraqi government has expressed its intention to seek an extension of the exemption previously granted by the former administration, according to remarks made by Iraqi Prime Minister Mohammed Shia Al-Sudani in an interview.
During this interview, Al-Sudani discussed Iraq’s plans to wean itself off reliance on Iranian supplies by 2028, asserting: “There will be a clear energy independence.”
He further emphasized the necessity of sustaining current exemptions during the transitional period, while also announcing initiatives to connect Iraq’s energy infrastructure with neighboring countries in pursuit of energy integration.
This recent call to action is not an isolated incident; it follows recent dialogue between U.S. Secretary of State Marco Rubio and Prime Minister Al-Sudani, where the focus was on minimizing Iranian influence in the region. Rubio reiterated the importance of Iraq achieving energy independence.
The latest U.S. statements might not indicate a refusal to extend Iraq’s current exemptions, but rather suggest an intensification of pressure on Baghdad to reduce its reliance on Iranian energy imports.
These developments took place shortly after U.S. Treasury Secretary Scott Besent confirmed plans to escalate sanctions against Iran, asserting that the U.S. aims to “close” Iran’s oil sector utilizing “pre-defined standards and tables.” He posited that enacting severe financial strains on Iran could signal the onset of an updated sanctions policy.
Besent also proposed collaboration with “regional parties” to facilitate the transfer of Iranian oil to market, with Russia emerging as a likely participant in these discussions, having previously expressed willingness to assist the U.S. in negotiations with Iran regarding its nuclear ambitions and regional policies.
“The Treasury is prepared for direct discussions with those countries. Our objective is to constrict the Iranian oil sector along with their drone capabilities,” Besent remarked.
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