Iraq plans to end $4 billion in Iranian gas imports by 2028 as it diversifies beyond oil
BAGHDAD — Iraq’s Prime Minister Mohammed Shia Al-Sudani said he hopes to end the country’s $4 billion reliance on Iranian gas by 2028, in an effort to diversify the major oil-producer’s economy. Decades of mismanagement, underinvestment and corruption have strained the power grid of Iraq, which is OPEC’s second-largest oil producer after Saudi Arabia. Gas from Tehran fuels nearly a third of Iraq’s electricity generation, yet frequent and prolonged outages remain common, forcing residents to rely on costly, polluting private generators. “We developed a clear vision to address this structural imbalance that affects our ability to generate and produce electricity and provide it to citizens,” Al-Sudani told CNBC’s Dan Murphy in Baghdad. The Prime Minister added that Baghdad had signed deals with TotalEnergies, along with Chinese and Emirati firms, to invest in capturing gas that is now flared — worth $4 billion to $5 billion a year. Oil production releases large volumes of gas that are typically burned off, a process also known as flaring. Recovering and processing that gas, instead of wasting it, could ease Iraq’s chronic power shortages. “For the first time in Iraq’s history , there is a clear plan and daily action to resolve this issue, with a deadline of early 2028 set for zero gas flaring,” Al-Sudani pledged. Washington, Beijing or Riyadh? Iraq, which maintains ties with the U.S. and Iran, strikes a delicate balance as it courts Chinese investment to rebuild infrastructure and Gulf partners to help improve its strained power grid. The U.S., which led a 2003 invasion that toppled former Iraqi dictator Saddam Hussein, is a key defense partner and has about 2,500 troops on the ground — a figure expected to fall further. Al-Sudani described his government’s approach as “multi-pronged,” noting interest from Chinese, Russian, European and American firms, as well as Gulf investors. “Our economy and our relations have never been one-sided,” Al-Sudani said. “We recently signed agreements in principle with Chevron, Exxon Mobil, Halliburton and SLB (Schlumberger),” Al-Sudani told CNBC, adding that Qatari investments in Iraq exceeded $5 billion. Saudi and Emirati private sector investments also span several projects, including an agreement with the United Arab Emirates’s renewable champion Masdar to produce 1,000 megawatts of energy. Iran’s shadow looms large Despite Al-Sudani’s “multi-pronged” diplomatic approach, Iraq could be hit hard by renewed sanctions on neighboring Iran. In August, European powers triggered the “snapback” mechanism to restore sanctions that were lifted in 2015, when Iran agreed to limit its nuclear activities in exchange for economic relief under the Joint Comprehensive Plan of Action. During President Trump’s first term, the U.S. Treasury issued exemptions for Iraq to import Iranian electricity, despite the implementation of his “maximum pressure” campaign on Tehran. Iran’s influence on Iraq still lingers, both politically and financially. Despite a bloody war fought between the two neighbors from 1980 to 1988, Baghdad remains one of Tehran’s few remaining footholds in the region. Syria, under Bashar Assad, and Lebanon, through Hezbollah, once took cues from the Iranian Revolutionary Guard Corps. Now, with many of those proxies weakened, Iraq has become one of the last strongholds of Iranian influence. The renewed sanctions could also drive Tehran to intensify its efforts to evade restrictions, possibly using Iraqi banks to move dollars illicitly. Earlier this year, several Iraqi lenders were banned from engaging in dollar transactions after the U.S. Treasury cracked down on money laundering and currency smuggling. In 2019, demonstrators took to the streets in mass protests dubbed the “October Revolution,” calling for an end to endemic corruption and Iranian influence for strangling the country’s economy. Al-Sudani, who rose to power after that upheaval, insisted his government had taken tangible steps to restore public trust, such as economic progress and political stability. “This government has begun reforming regulatory institutions responsible for combating corruption, as well as establishing mechanisms that promote transparency and procedural integrity,” Al-Sudani said. He added that recent financial and banking reforms have “strengthened the presence of investment companies.” Al-Sudani pointed to the inauguration of a new Pharmaceutical Manufacturing City in Iraq, involving major American and British firms. “This environment encouraged them to enter and transfer their expertise and technology to establish the important pharmaceutical industry that Iraq needs,” he said. Despite these reforms, the International Monetary Fund has said corruption “remains a significant hurdle for growth.” Political stability Iraqis will head to the polls on Nov. 11, voting for the seventh time since the 2003 U.S.-led invasion. That election, which will select members of Iraq’s 329-seat parliament, comes amid rising unemployment, which continues to weigh on Iraq’s young and restless population. Iraq’s Prime Minister Mohammed Shia Al-Sudani told CNBC’s Dan Murphy the election marks “one of the benchmarks in the history of the country,” describing it as proof that Iraq’s democratic process remains intact. “It is a peaceful transfer of power … and the government has fulfilled all requirements and prepared the appropriate atmosphere for participation,” he said. However, youth unemployment continues to be a challenge. Around 60% of Iraq’s nearly 46 million citizens are under the age of 30, a demographic that could determine whether the election reinvigorates a stagnant political system or deepens disillusionment. The 2021 parliamentary election drew only 43% turnout, according to the electoral commission, in a vote that had to be brought forward after anti-government protests. “According to the latest census data, the Iraqi society is a youthful society,” Al-Sudani said. “This places responsibility on the state to find solutions to problems of the youth, the most important of which is creating job opportunities. We have achieved [an unemployment] decrease of more than 2%, according to official estimates.” To that end, Al-Sudani added that his government is “encouraging the private sector to welcome more job seekers” while fostering industries tied to digital transformation. “We have established a National Center for Digital Transformation and a Center for Cybersecurity,” he said, adding that a higher committee for artificial intelligence is preparing a national strategy to absorb a larger share of young workers. “We have achieved a significant amount of services and economic reforms,” he added, citing a “clear stability in Iraq” and a “feeling of optimism … and hope for a better future” among citizens.
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