Under pressure: Iraq pushes to replace Iranian energy supply
Vali Kaleji, The Cradle, March 4, 2025 ─
Faced with US sanctions on Iran and worsening energy shortages, Iraq is rapidly diversifying its gas and electricity sources, securing deals with Turkmenistan, Turkiye, and Persian Gulf states to boost domestic production – marking a strategic pivot that could sever its dependence on Tehran by 2028.
Despite being OPEC’s second-largest oil producer and possessing substantial natural gas reserves, Iraq has struggled to secure a stable energy supply due to decades of war, occupation, insecurity, internal conflicts, and a lack of foreign investment.
A key vulnerability is its heavy reliance on Iranian gas and electricity imports, caused by a severe imbalance in domestic production and consumption. Currently, approximately 80 percent of Iraq’s electricity generation depends on natural gas, making the country heavily dependent on Iranian imports to sustain its power grid.
In July 2022, Iraq signed a five-year contract with Iran to import 400 megawatts of electricity. In March 2024, another agreement was reached to increase Iranian gas imports to 50 million cubic meters per day, valued at around $6 billion annually. However, the implementation of these agreements faces significant challenges.
Iran’s energy crisis and its ripple effects
Iran itself is grappling with an unprecedented energy imbalance. Frequent drops in gas pressure and power outages have forced industrial plants to switch to burning mazut, a low-quality and highly polluting fuel.
In an attempt to manage household energy demand, the Iranian government has resorted to closing industries, production centers, universities, schools, offices, and banks on particularly cold days. Ironically, despite possessing the world’s second-largest natural gas reserves (17 percent of the global total) and 9.54 percent of global oil reserves, Iran has been forced to import gas from Turkmenistan and Russia.
Iran’s energy crisis has had direct consequences for its electricity exports. With 85 percent of Iran’s power plants fueled by gas, any shortage leads to significant electricity production declines. In the summer of 2024, Iran faced a 14,000-megawatt electricity deficit, raising concerns about its ability to maintain exports to Turkiye, Armenia, Iraq, Afghanistan, and Pakistan.
On 10 July 2023, Iraqi Prime Minister Mohammed Shia al-Sudani convened an emergency meeting to explore alternatives to Iranian gas. This came after an abrupt suspension of Iranian exports, which forced power plants in Al-Mansuriyah, Baghdad, and Sadr to reduce or halt operations, costing Iraq roughly 5,000 megawatts of lost electricity.
By 17 October 2024, the shortfall had increased to 7,000 megawatts, and in December, Iraq lost another 6,000 megawatts due to halted Iranian supplies. The situation deteriorated further last month when Iran ceased gas exports for several days, leading to a one-third reduction in Iraq’s electricity production.
Maximum Pressure 2.0
Another major challenge stems from the reinstatement of the US “maximum pressure” campaign against Iran. Sanctions have long complicated Iraq’s payments for Iranian electricity and gas imports, and this issue has now reached a critical stage.
On 4 February, US President Donald Trump signed a National Security Presidential Memorandum, effectively reviving his administration’s previous sanctions strategy. A key aim is to reduce Iran’s oil exports to zero, particularly to China, and to end certain exemptions, such as those for the Chabahar Port, which links Iran to the Oman Sea, and also Iranian energy exports to Iraq.
In fact, after Trump’s unilateral withdrawal from the Joint Comprehensive Plan of Action (JCPOA) in May 2018 during his first term, the Indian lobby succeeded in exempting Chabahar Port from US sanctions, and the Iraqi government was also able to extend the annual exemption for importing gas and electricity from Iran. But it is now clear that Washington’s policy approach has hardened in Trump’s second administration.
As the official spokesman for the Iraqi Ministry of Electricity recently announced:
‘’The US sanctions exemption for Iranian gas imports will end on 8 March 2025, while Iran’s supply (gas) to Baghdad and the central region has basically stopped, and as a result, 8,000 megawatts of electricity have been lost so far.”
But he also caveated his statement, saying that “the Ministry of Electricity has not received any notification from the US about the suspension of Iranian gas imports so far, and it is possible that the Iraqi government will be able to receive a new exemption; if it is not extended, we may have plans.”
While Iraq remains hopeful for an exemption renewal, the potential loss of Iranian energy could significantly impact its grid. Energy expert Harry Istepanian has warned that without an immediate replacement, Iraq could face severe blackouts and potential unrest, especially in the south:
“Early warnings for next summer have already been issued by the government, signaling challenging times ahead – especially as Iran is unable to supply Iraq with the agreed volume of approximately 50-55 million cubic meters per day. The electricity crisis could destabilize Iraq’s political landscape – an issue the United States must take into account. Without an immediate solution to replace Iranian gas, Iraq may face another wave of protests or even riots, particularly in the south.”
On the other hand, Jamal Kocher, an Iraqi lawmaker from the finance committee, tells TNA:
‘‘The US measures will have both negative and positive implications. The key question is how Iraq can replace Iranian gas – experts must address this. However, the measures may not harm the dinar’s exchange rate against the dollar and could benefit Iraq if the government aligns more closely with the Trump administration. Still, Iraq suffers from a cash liquidity problem with no simple fixes in sight.”
Iraq’s strategy to reduce dependence on Iran
In the meantime, Baghdad has initiated multiple projects to diversify its energy imports and enhance domestic production. One major step has been securing gas imports from Turkmenistan, with which Iraq signed an agreement last October to import 20 million cubic meters of gas per day.
The new deal is crucial for Iraq, following disruptions from Iran due to unpaid debts and complications from US sanctions. Iraq’s Electricity Minister, Ziad Fadil, stated that “the gas will be transported through Iran’s pipeline system under a ‘swap’ transaction arrangement facilitated by the Dubai-based Loxstone Energy Company.”
Another significant development is Iraq’s plan to import liquefied natural gas (LNG). The government is constructing an LNG import terminal at Grand Faw Port in the south, with a storage capacity of 300,000 cubic meters. While no official details have been provided on who will supply the LNG, analysts expect Qatar LNG to play a role, as Iraq previously considered Qatari LNG in 2022.
To further mitigate dependence on Iranian energy, Iraq has connected its power grid with Turkiye. On 21 July 2024, a new 115-kilometer transmission line was inaugurated, delivering 300 megawatts to northern regions, including Mosul, Nineveh, Salahuddin, and Kirkuk.
Additionally, Iraq is working to integrate its electricity grid with the Gulf Cooperation Council (GCC). The project involves a transmission line from Kuwait’s Al-Wafra station to Iraq’s Al-Faw station in Basra, with a 77-kilometer extension from the Safwan border crossing.
Enhancing domestic gas production is another key initiative. Iraq has significantly reduced gas flaring from oil fields, cutting it from 47 percent in 2021 to 33 percent in 2024, with a goal of reaching 20 percent by 2025.
A $27 billion deal with TotalEnergies is expected to add 600 million cubic feet (around 17 million cubic meters) per day to domestic production and curb flaring. Alongside this, Iraq is expanding its electricity generation capacity. The government plans to add 35,000 megawatts by developing steam and gas power plants. Increased investment in hydroelectric and combined-cycle plants is expected to further reduce dependence on gas imports and support sustainable power generation.
A new energy map for Iraq?
Based on these initiatives, Iraq aims to phase out Iranian gas imports by 2028. Prime Minister Sudani claims that the decision to halt Iranian imports is not influenced by external political pressure. “We are not under pressure from any country,” he told Aliqtisad News.
Yet, if successful, Iraq’s transition will not only deprive Iran of a crucial export market but also bring Baghdad closer to Turkiye and the Arab states of the Persian Gulf. However Baghdad chooses to spin its decisions, it is notable that these new partners have long sought to purge Iraq of Iranian influence.
While challenges remain, Iraq’s efforts to secure alternative energy sources mark a decisive shift in its regional energy dependencies. The success of this transition will determine whether Iraq can finally achieve energy stability after decades of reliance on its eastern neighbor.