U.S.’s New Hopes In Iraq Are Dashed As It Signs Longest Ever Gas Deal With Iran

Given its huge oil and gas reserves, strategically critical location in the heart of the Middle East, and its initial welcoming of the U.S. after the fall of President Saddam Hussein in 2003, Iraq has long been at the top of Washington’s list of countries in the region with which it wants a deeper working relationship. In many ways, the U.S.’s end of combat mission in the country on 31 December 2021 was regarding by the White House as a temporary tactical retreat, before a new diplomacy-led relationship could be forged. Washington’s long-running financial aid to Iraq would be used as the basis for this diplomatic renaissance, which could be gradually leveraged into a weakening of the bond Iraq has with Iran  – and by association, therefore, with China and Russia too. A good starting point for this, the U.S. believed, would be the substitution of Iranian gas used by Iraq to keep its power grid going with supplies from elsewhere. Iraq has always been well-aware of Washington’s strategy and has been keen to play along, offering scraps of hope at regular intervals – the occasional engineering award to a U.S. firm, being a favourite – in exchange for hundreds of billions of dollars given it as a reward. Given this long-running game of bluff and double-bluff, it is exceptionally interesting to see that Iraq has now apparently thrown all caution to the wind and signed its longest ever deal with Iran to keep supplying it with gas for the next five years. So, what does it all mean for the U.S.? Related: The Energy Sector Is A No-Brainer, but There’s More to Come

The sheer length of Iraq’s new gas deal with Iran means Baghdad can be under no illusion that Washington will regard it as a serious political statement of intent. It may also see it as a significant betrayal of assurances repeatedly given by all the recent leaders of Iraq that in exchange for U.S. funding to help in this process, the country will move away from its dependence on Iran, in the first instance by reducing its imports of gas eventually to nothing. Baghdad knows perfectly well that the White House sees these ongoing gas imports by Iraq as a key means of funding for Iran. Only last week, Iran’s Deputy Oil Minister (and managing director of the National Iranian Gas Company), Majid Chegeni, stated that his country has earned US$15 billion from exporting around 52 billion cubic metres (bcm) of gas to Iraq since 2017. Baghdad also knows that Washington sees Iraq’s close cooperation with Iran on the two countries’ shared oil fields as the primary method in which Iran has been able to keep its economy intact over the years despite sanctions,  as analysed in depth in my new book on the new global oil market order. There are many shared fields between the two countries, but the most notable ones are Azadegan (on the Iran side)/Majnoon (on the Iraq side), Azar (Iran)/Badra (Iraq), Yadavaran (Iran)/Sinbad (Iraq), Naft Shahr (Iran)/Naft Khana (Iraq), Dehloran (Iran)/Abu Ghurab (Iraq), West Paydar (Iran)/Fakka/Fauqa (Iraq), and Arvand (Iran)/South Abu Ghurab (Iraq). The oil on the non-sanctioned Iraqi side of the border is often drilled from the same reservoirs as the oil drilled on the sanctioned Iranian side, sometimes even through long-distance horizontal directional drilling. Even if the Americans, Europeans, or any of their most trusted appointees stationed people at every single rig in every single shared field in Iraq they would not be able to tell if the oil coming out it was from the Iraq side or the Iranian side. So this has allowed for decades Iranian oil simply to be rebranded at source as Iraqi oil and shipped to wherever is required in the world. 

Up until now, the most shocking betrayal of the U.S.’s optimistic trust in Iraq in this context came from the ultra-smooth former Iraqi Prime Minister, Mustafa al-Kadhimi. He had danced the usual dance with the U.S. so well that in May 2020 Washington gave him even more money than before and the longest waiver ever given – 120 days – to keep importing gas from Iran, on the standard condition that Iraq stopped doing it soon. However, once the money had been banked and al-Kadhimi was safely back on home territory, Iraq signed a two-year contract – the longest period ever at that point – with Iran to keep importing gas from it. Washington then let the formidable then-State Department spokeswoman, Morgan Ortagus, out of her room, and she let fly. Not only was the next waiver to Iraq the shortest ever – 30 days – but also at the press conference in which it was announced, Ortagus let it be known that the U.S. was hitting 20 Iran- and Iraq-based entities with swingeing new sanctions. She cited them as being instruments in the funnelling of money to…