Iraq must act fast to avoid a domestic energy crisis

Ameer Al Mohammedaw/DPA via Reuters Connect

Things have been on the up in Iraq recently. Economic growth is expected at 4-5 percent this year, security has improved and the government elected in October 2022 has been quite stable.

The country has mostly avoided getting sucked into the regional confrontations. Mohammed Shia Al Sudani’s administration has pushed ahead with long-delayed projects.

But things are never simple in the land of the two rivers. Baghdad needs to work fast to avoid an energy crisis, and the GCC could be a critical partner.

Iraq has suffered severe electricity problems ever since the US invasion of 2003, and before, during the 1990s sanctions period. Fast population growth, urbanisation, the wider use of appliances such as air conditioners and highly subsidised electricity prices, mean demand rises rapidly.

Generation of electricity has expanded, but not kept up. Iraq’s peak electricity demand hit 48 gigawatts (GW) last summer, and will probably top that this year. At best, it can generate 27GW.

Iraq has leant heavily on Iran to supplement its supplies, but these are now part of the problem

Even this winter, when power supplies are usually more adequate, residents have suffered blackouts of seven hours a day. Noisy, dirty, expensive diesel generators only partly fill the gap. Electricity shortages put Iraqis in severe discomfort in the sweltering summers, fan discontent and hamper wider economic growth.

Iraq has leant heavily on Iran to supplement its supplies, but these are now part of the problem.

It began importing Iranian gas in 2017, and last March the electricity ministry signed a new contract to import 50 million cubic metres daily. Iran also supplies about 1GW of electricity directly. Iraq pays about $4 billion each year for gas and electricity imports from its eastern neighbour.

But Iran has not been a reliable supplier. It has been increasingly beset by shortages of gas and power at home because of rampant rising demand, heatwaves, drought cutting hydroelectric output and insufficient investment in its massive gas fields.

Even if Tehran can live up to its commitments, Washington stands in the way.

The US has repeatedly issued short-term waivers for electricity imports, but the Trump administration looks set to cancel those as part of its renewed “maximum pressure” campaign.

It may also go after the waivers for gas imports. These had appeared legally more secure but the new US government doesn’t seem particularly concerned about complying with laws, and particularly not for a foreign state it regards as in bed with its arch enemy in Tehran.

Secretary of state Marco Rubio and newly-nominated assistant secretary of state for Near Eastern affairs, Joel Rayburn, are both known as Iran hawks.

Iraq has sought solutions. It has built power connections to Turkey and Jordan, but these provide only small volumes. The federal authorities also buy electricity from the semi-autonomous Kurdistan region, though it is struggling with its own gas and power shortfalls.

In October Baghdad signed up to import gas from Turkmenistan, with volumes of 10 million cubic metres per day in winter and 20 million cubic metres in summer.

However, this gas will have to transit through Iran and is likely also to be caught by sanctions. Even if delivered, it will generate only about 3,000-4,000MW, leaving a large gap.

Iraq now has plans to build a terminal to import liquefied natural gas at Faw near Basra on the Gulf.

The best progress has been made, after years of delay, in capturing flared gas from oil operations. Major projects led by Shell and TotalEnergies in southern Iraq may be joined by BP’s entry into the fields around Kirkuk in the north.

Several other deals have been signed for the development of “non-associated” gas fields, those where the gas is produced independently of oil, with Chinese companies and Sharjah-based Crescent Petroleum.

But despite all these efforts, this summer there will be major shortfalls in fuel and electricity.

It is in the GCC’s interest to have a stable and economically prosperous Iraq next door. They have very little political influence in Baghdad, where generally pro-Iranian Shi’ite parties have held most power.

The UAE, Kuwait, Saudi Arabia and Qatar have all sought to engage with Iraq on energy in various ways. QatarEnergy is in partnership with TotalEnergies in the integrated project involving gas capture.

Long drawn-out plans to connect Iraq to the GCC electricity grid via Kuwait should finally be completed this year, with about 500MW of capacity. Acwa Power of Saudi Arabia, Masdar and Amea Power from the UAE have sought to advance solar power projects.

But, with US political backing, there is room for a much more comprehensive package.

The GCC should increase transfer capacity to a strategic level of several gigawatts. With more connectivity to Jordan, Egypt and Turkey, and perhaps post-war Syria, this would form the basis for a pan-regional grid.

Iraqi bureaucracy has been frustrating, but it could be time to give another push on large-scale solar farms within Iraq. On the gigawatt scale already rolled out in the GCC, they could be built within two to three years and would have an immediate impact on meeting summer daytime needs.

• Iraq-Turkmenistan gas deal unlikely to happen
• Iraq risks higher budget deficit after oil sales fall short
• Two new LNG terminals in Iraq to replace Iran gas

Forming partnerships with provincial authorities on smaller local facilities would build experience and local goodwill. And there is much room to work with US companies to deliver grid upgrades and save some of the 40-50 percent of Iraqi electricity which is lost to technical failings or illegal connections.

On the gas side, while the Sharjah-based pair of Crescent and Dana Gas are expanding the Khor Mor field in Kurdistan, several other large fields have been stuck, politically and commercially. If developed, they could meet the Kurdistan region’s own gas and power needs and provide for the federal parts of the country too.

It’s going to be a hot and restless summer in Iraq. The US pressure on Iran means that other countries will feel the squeeze too. This could lead to another dangerous resurgence of regional tensions – or it could be the chance for more constructive relations throughout the Gulf.

Robin M Mills is CEO of Qamar Energy and author of The Myth of the Oil Crisis