Iraq's Power Crisis Deepens as U.S. Blocks Turkmenistan Gas Deal

Iraq has been seeking to import natural gas from Turkmenistan via Iran to alleviate its long-standing power shortages. However, this effort has been thwarted by the lack of approval from the United States, forcing Baghdad to urgently seek alternative solutions to maintain domestic power supply.

Since the 2003 U.S.-led invasion that toppled Saddam Hussein's regime, this oil-rich nation has struggled to provide stable electricity to its citizens. This has compelled many to rely on expensive private generators, causing both economic strain and social unrest.

In 2023, a proposed agreement aimed to allow Turkmenistan to export natural gas to Iraq via Iran. Under this swap agreement, Iran would receive natural gas from Turkmenistan and then supply it to Iraq. However, this plan carried the risk of violating U.S. sanctions against Iran, necessitating approval from the U.S. government.

Despite months of lobbying, the U.S. approval never materialized. The Trump administration's "maximum pressure" policy on Iran intensified, making it increasingly difficult for Iraq to navigate between its two major allies.

Iraq has been trying to obtain U.S. approval to import approximately 50 billion cubic meters of Turkmenistan's natural gas through Iran. A draft of the swap agreement revealed that Iraq planned to import 50.25 billion cubic meters of Turkmenistan's natural gas annually, with the assistance of Iran's state-owned National Iranian Gas Company (NIGC).

According to the documents, Iran would not receive financial compensation but would instead be supplied with natural gas to meet its own needs, not exceeding 23% of Turkmenistan's daily gas export volume. The proposal also included the involvement of third-party international monitoring agencies to ensure compliance with U.S. sanctions and anti-money laundering regulations.

However, as the U.S. increased pressure on Iran over its nuclear program, the agreement ultimately fell through. This left Baghdad in a precarious position, caught between its primary allies, the U.S. and Iran.

Iraq's reliance on Iranian natural gas and electricity has been significant over the past decade. An anonymous Iraqi power official stated that Iranian natural gas meets nearly one-third of Iraq's electricity needs, with the country importing 9.5 billion cubic meters of natural gas from Iran in 2024.

Despite being the second-largest oil producer in the Organization of the Petroleum Exporting Countries (OPEC), Iraq's underinvestment and lack of infrastructure for collecting and processing natural gas have led to the flaring of much of the associated gas during oil extraction.

In 2023, Iraq only produced 11 billion cubic meters of natural gas suitable for electricity generation or industrial use. The demand for natural gas in Iraq fluctuates seasonally, peaking at around 45 million cubic meters per day during the summer and dropping to 10-20 million cubic meters per day in other seasons.

In March, the Trump administration terminated a sanctions waiver that had been in place since 2018, allowing Iraq to pay for electricity imports from Iran. This move significantly reduced Iraq's electricity imports from Iran, exacerbating the power shortage during the summer peak demand period.

The shortage of Iranian natural gas supply has reduced Iraq's power generation capacity by approximately 3,000 megawatts, which is more than 10% of Iraq's total installed power generation capacity of around 28,000 megawatts. This deficit has affected the electricity supply to about 2.5 million households.

Iraq had hoped to diversify its supply sources and avoid sanctions risks through the Turkmenistan natural gas agreement. However, the inability to secure U.S. approval for the agreement has left Iraq scrambling for alternatives.

In May, the Iraqi Ministry of Electricity warned the state-owned Trade Bank of Iraq that failure to implement the agreement could impact Baghdad's ability to maintain gas-fired power plants during the summer peak demand period. Three months later, Iraq experienced a nationwide blackout in August.

With the Turkmenistan natural gas import route blocked, Iraq is exploring other alternatives to fill the power supply gap, including building infrastructure to import liquefied natural gas (LNG) from Qatar. The state-owned South Gas Company has announced plans to lease a floating LNG receiving terminal to import natural gas from Qatar and Oman.

Over the past two years, Iraq has signed agreements with global energy giants such as TotalEnergies, BP, and Chevron to accelerate the development of its natural gas projects. TotalEnergies has initiated the second phase of the Ratawi oil field development project, with a total investment of 27 billion dollars aimed at increasing Iraq's oil, natural gas production, and power generation capacity.

BP has also received final approval from the Iraqi government to redevelop the giant Kirkuk oil fields, with initial plans to extract 3 billion barrels of oil equivalent resources. Iraq is also expanding its gas-fired power plants, recognizing the need for more natural gas and diverse supply sources in the future.