"Trump Administration Ends Iraq's Waiver to Buy Iranian Electricity"

The Trump administration's decision to end the waiver allowing Iraq to import Iranian electricity and gas has significant geopolitical and economic implications. The waiver, which was set to expire on March 7, 2025, has been a contentious issue, with the U.S. aiming to reduce Iran's influence over Iraq and push the country towards energy independence.

Geopolitical Dynamics

The expiration of the waiver is part of the Trump administration's broader strategy to increase pressure on Iran. The National Security Presidential Memorandum 2 (NSPM-2) explicitly states that "The Secretary of State shall modify or rescind sanctions waivers, particularly those that provide Iran any degree of economic or financial relief." This move is likely to further strain relations between the U.S. and Iran, as it directly impacts Iran's ability to export energy to Iraq, a key economic lifeline.

For Iraq, the expiration of the waiver presents both challenges and opportunities. On one hand, Iraq faces the immediate challenge of avoiding an electricity crisis by finding alternative energy sources. On the other hand, the long-term opportunity is to achieve energy independence, which could insulate Iraq from the effects of Iran's energy policies. As Ahmed Musa, the spokesperson for Iraq’s ministry of electricity, noted, "We are working closely with the ministry of oil to compensate the affected plants with alternative fuel and ensure that there is no electricity crisis."

Economic Consequences

The economic consequences of the waiver expiration are significant for all three countries involved.

For the U.S., the move could lead to increased trade with Iraq. If Iraq switches to liquid fuel feedstock, it could import American natural gas, which would boost U.S. exports and support its energy sector. Additionally, the U.S. could see increased investment opportunities in Iraq, particularly in the energy sector, as Iraq seeks to diversify its energy sources.

For Iraq, the immediate challenge is to find alternative energy sources. Iraq is exploring several options, including domestic gas production, renewable energy projects, and increasing electricity imports from neighboring countries. However, the feasibility of these options in the short term is uncertain, as they are still under construction or in the negotiation phase.

For Iran, the expiration of the waiver will have significant economic losses. The loss of this key market could have a substantial impact on Iran's economy, particularly its energy sector. As Michael Knights, the Jill and Jay Bernstein Senior Fellow at The Washington Institute, points out, "Iran is likely to again cut energy supplies to Iraq in the summer of 2025," which suggests that Iran is already facing internal shortages and may not be able to rely on energy exports to Iraq as a stable source of revenue.

Alternative Energy Sources and Strategies

Iraq is exploring several alternative energy sources and strategies to mitigate the impact of the waiver expiration. These include:

1. Domestic Gas Production and Alternative Fuels: Iraq is working closely with the Ministry of Oil to compensate for the affected plants with alternative fuel and ensure that there is no electricity crisis. Musa also mentioned that Iraq is completing steam power plants that run on locally sourced fuel, which could help in the short term.

2. Renewable Energy Projects: Iraq is constructing a 1,000-megawatt solar project in Basra with France’s TotalEnergies, has agreements with Saudi Arabia’s ACWA Power for a 1,000-megawatt plant in Najaf, and is close to a deal with the UAE’s Masdar for another 1,000 megawatts across four provinces. These projects are part of Iraq's strategy to boost renewable energy production. However, the feasibility of these projects in the short term is uncertain as they are still under construction or in the negotiation phase.

3. Increasing Electricity Imports: Iraq is looking to increase electricity imports from Jordan and Turkey. Musa underscored that they are in the process of building transmission lines with the Gulf states. This strategy could provide a short-term solution to the energy crisis, but it depends on the timely completion of the transmission lines and the availability of electricity from these countries.

4. Gas Imports from Turkmenistan: Iraq has an agreement with Turkmenistan to import 20 million cubic meters of gas. Musa said, "If imported gas is cut off, we will try to activate the agreement signed with Turkmenistan to import 20 million cubic meters of gas", adding that the potential gas supplies from Turkmenistan might cover approximately half of the gas currently supplied by Iran. This option could provide a significant amount of gas in the short term, but it depends on the activation of the agreement and the reliability of Turkmenistan as a supplier.

Conclusion

The expiration of the waiver allowing Iraq to import Iranian electricity and gas has significant geopolitical and economic implications. The move is part of the Trump administration's broader strategy to increase pressure on Iran and reduce its influence over Iraq. For Iraq, the expiration of the waiver presents both challenges and opportunities, as it seeks to achieve energy independence and diversify its energy sources. The economic consequences of the waiver expiration are significant for all three countries involved, with the U.S. potentially seeing increased trade and investment opportunities, Iraq facing the challenge of finding alternative energy sources, and Iran facing significant economic losses.