Iraq snubs US push to cut off Iran energy imports

US President Donald Trumps Administration is pressuring other countries to stop purchasing energy from Iran in a bid to tighten the noose against Tehran. However, Baghdad says it can not and will not comply with punitive measures imposed by Washington.

12 February 2019
ID : 11825
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Iraqi leaders, fearing that a further shortfall in power would lead to mass protests and political instability in their electricity-starved country, are pushing back on the US demand to stop buying energy from Iran which is rooted in President Donald Trump’s sanctions against the latter, the New York Times reports. 

The Trump administration's pressues have become a major point of conflict between Washington and Baghdad.

"Iraq’s defiance further jeopardizes Trump’s goal of getting all nations to comply with sanctions after withdrawing from the deal to limit Tehran’s nuclear program last year," the newspaper reports.

Iranian natural gas is the single most critical energy import in Iraq, but U.S. officials say purchases must end now because gas falls under the U.S. sanctions. "Iraqi officials said the U.S. demand acknowledges neither Iraq’s energy needs nor the complex relations between Baghdad and Tehran," the New York Times writes. 

Baghdad got a 90-day waiver from the US Treasury Department on 21 December to keep buying Iranian gas, power.  

Already, European nations have set up a legal financial mechanism to do business with Iran, and China and India are resisting U.S. efforts at prodding them to cut off oil purchases, according to the New York Times. The European mechanism has been called INSTEX (Instrument in Support of Trade Exchange) and is supposed to facilitate trade of vital pharmaceuticals, medical devices and agri-foods. 

Tensions between Washington and Baghdad "rose after Trump said Feb. 3 that he planned to have U.S. troops who have returned to Iraq “watch Iran,” despite Baghdad’s need to maintain cordial ties with its fellow neighbor." 

The NYT adds that "U.S. officials are seeking to cut off Iraqi purchases of natural gas and electricity, even though the country relies on those for a good portion of its energy needs. Iran is Iraq's sole foreign supplier."

Baghdad imports two billion dollars worth of gas from Iran to feed its energy-starved power plants, according to Iranian Petroleum Minister Bijan Zanganeh. 

"Iraq’s energy production and grid capabilities have lagged since the U.S.-led invasion of 2003, and blackouts in cities are common, even with the current purchases. The energy shortfall is especially acute in the sweltering summers, which has led to large protests," accroding to the paper.

Iran has been exporting 1,200 megawatts of electricity to its Arab neighbour. Tehran and Baghdad renewed the deal last week during a meeting between Iranian Power Minister Reza Ardakanian and Iraqi Electricity Minister Luay al-Khatteeb. The power is exported through three transmission lines in Basra, Diyala and Amara that connect Iraqi grid to the Iranian power lines.

Iraqi Electricity Minister, Luay al-Khateeb (left) shakes hands with Iranian Energy Minister Reza Ardakanian following renewing Iran-Iraq power agreement in Tehran (Photo: IRNA, Amin Jalali) 

Iran’s power export to Iraq dates back to 2005 when under the first deal Iran agreed to send supply 150 megawatts of electricity to the neighbouring country.

Iran is seeking to become an energy hub and reach other regional countries through Iraq. Iranian President, Hassan Rouhani, had earlier called on his government to pursue what he calls "power diplomacy". Iran has been also supplying power to its neighbours such as Iraq, Afghanistan, Pakistan and Armenia. The state firm Iran Power Generation and Transmission Company (Tavanir) says it’s ready to increase the current amount two-fold.

The New York Times cites officials in Baghdad as saying that "there is no easy substitute for either one because it would take three years or more to adequately build up Iraq’s energy infrastructure."

"The defiance by Iraqi leaders underscores the lack of support among many nations for the sanctions and the American goal of crippling Iran’s government," the paper says. It continues to cite several analysts who believe China and India won't stop their purchases of Iranian oil even after the 180-day waivers expire.

Iraqi officials have also expressed concern over demands from the Trump administration to sign deals with American companies to build up energy infrastructure, the paper adds. 

"Last October, the Trump administration pushed Iraqi officials to sign agreements with General Electric for multibillion-dollar power generation deals, after Siemens A.G., a German company, had been on the verge of landing a $15 billion deal with Baghdad. Iraqi officials ended up signing nonbinding agreements with both companies," it reports. 

Senior American officials had warned Mr. al-Abadi, then the prime minister, that signing the deal with Siemens would put Iraq’s relations with the United States at risk, Bloomberg News reported.

Here is where Iran has been hard at work to snatch those deals. Alireza Kolahi, Vice President of Iran-Iraq Joint Chamber of Commerce told Iran Chamber Newsroom last December that Iranian firms are challenging both the General Electric and Siemens by offering higher quality products at lower prices. 

Iraq’s power sector suffers from many problems, including a poor grid and lack of fuel to be converted to electricity, the New York Times reports. That's why Iran has not only been supplying gas for Iraq's power stations, but also constructing several plants in both the capital and the city of Najaf in a bid to meet Iraq's high energy demands. 

Watch video: Iran-Iraq Joint Chamber of Commerce VP, Alireza Kolahi discusses Iran's energy plans in Iraq

The report cites the World Bank as saying "in 2017, Iraq signed a deal with Iran to import up to one billion cubic feet of natural gas daily, which would cost $2.8 billion annually at crude oil prices of $70 per barrel. The actual imports have been half that amount. The fuel accounts for 10 to 15 percent of Iraq’s electricity generation. "Even with that, Iraq has a shortfall of three gigawatts of power," according to the New York Times. 

The newpaper mentions that Trump administration is urging Iraqi officials to connect their grid to Saudi Arabia, Jordan or Kuwait for a long-term solution.

"They are also pushing Baghdad to sign contracts with foreign companies for natural-gas capture, processing and transport to use gas that is lost during crude oil production. Iraq has 1.7 billion cubic feet of gas flaring per day across 30 fields. The World Bank has worked with the Oil Ministry for two years to improve legal and regulatory foundations for gas contracts," writes the American paper. 

But that is not a short-term fix for energy shortfalls, and Iraq has been slow in signing contracts. Last year, Iraq signed a single natural-gas processing contract, with Baker Hughes and General Electric. The product would equal only a fraction of the imports from Iran, and it would take at least two years to come online

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