Iraq’s drive for energy self-sufficiency, fueled by potential future U.S. investment, and Türkiye’s ambitions of reaching the Persian Gulf with new infrastructure are raising concerns in Iran. The entry of additional international players into Iraq’s market would invariably undercut Iran’s dominant trade and energy ties with Iraq, diluting its geopolitical sway over its neighbor. Such a shift is likely to loosen Iran’s stranglehold on Iraq’s economic and political realms – a scenario that haunts Iranian policymakers.
A turning point in Iraqi foreign policy came in April with Prime Minister Mohammed Shia al-Sudani’s weeklong trip to the United States. He met with President Joe Biden in the Oval Office, a significant step forward in strengthening U.S.-Iraq relations. Al-Sudani also met with U.S. business leaders, resulting in dozens of memorandums of understanding (MOUs) focused on trade and energy. These MOUs aim to make Iraq more energy self-sufficient and reduce its reliance on natural gas imports. Soon after his return, al-Sudani hosted Turkish President Recep Tayyip Erdoğan for a meeting that produced dozens of agreements, including one regarding the major Development Road infrastructure project. The presence of delegations from the United Arab Emirates and Qatar at the signing ceremony highlighted the broader regional significance of these agreements. Later in April, al-Sudani held one-on-one talks with Saudi Crown Prince Mohammed Bin Salman during the World Economic Forum focused on expanding bilateral economic cooperation. These developments suggest a significant shift in the Iraqi government’s strategic view of alignment with U.S. policy and its Gulf neighbors that aims to lessen Baghdad’s energy dependence on Iran.
Baghdad touts U.S. investment as a necessary solution to its chronic electricity shortages that make coping with scorching summer heat more difficult and generate social instability and the Turkish road project as an attempt to diversify its economy. Iran, however, interprets both as strategic maneuvers aimed at weakening its influence in Iraq and the region. This aligns with broader anxieties in Tehran regarding the U.S.-led push to diminish its geopolitical and economic regional clout. As it strives to maintain its longstanding political and economic investments in Iraq, Iran has utilized both soft and hard power when it perceives its hegemony to be threatened.
A Deadly Attack
Over the past two decades, Tehran has woven a complex web of influence over Iraq’s political, military, and economic fabric. Its efforts have yielded significant dividends, cementing its role in shaping Iraqi governance and policy. Iraqi election cycles, often influenced by a politicized judiciary, have consistently amplified the clout of pro-Iranian elements there, further entrenching their political grip, thereby enhancing their economic status.
Similarly, pro-Iranian militias effectively control segments of Iraq’s state security apparatus. These groups operate with a degree of autonomy from the Iraqi government’s control, drawing salaries from the Iraqi government while eluding its oversight and accountability mechanisms. Economically, Iraq emerges as a vital conduit for Iranian exports, fostering a robust bilateral trade. The dependency extends to energy, with Iraq leaning heavily on purchases of Iranian natural gas to fuel domestic power generation, alongside direct electricity imports – transactions facilitated by exemptions from U.S. sanctions that enable Iran the rare opportunity to access U.S. hard currency.
Amid al-Sudani’s diplomatic outreach to Iran’s geopolitical rivals, a drone strike on April 26 crippled production at the Khor Mor gas field, Iraq’s most significant natural gas production site. The government of Iraqi Kurdistan, where the field is sited, pinned the blame on Iranian-aligned militants. The drone assault, which was the ninth attack in two years there but the first to cause deaths, jeopardized Khor Mor’s potential to lessen dependence on Iranian gas imports. The strike killed four Yemeni workers and wounded a number of others. It also plunged Iraq’s Kurdish region into near-darkness by knocking out fuel supplies for 2.5 gigawatts of electricity generation – nearly 70% of the region’s capacity. The stark message the attack delivered highlighted the intent of a powerful force to sabotage efforts to wean Iraq off gas imports from Iran.
In 2021, Dana Gas, the operator of Khor Mor on behalf of an international consortium, secured $250 million from the U.S. government to expand Khor Mor production to 700 million standard cubic feet per day (MMscf/d) by 2023. This ambitious target would have been sufficient to supply power stations in southern Iraq, reducing Iraq’s reliance on Iranian gas and electricity imports, which account for 40% of its supply in 2023.and potentially export gas to Türkiye, which also imported 17% of its gas from Iran in 2023. A second phase of the plan, known as K500, was to have achieved a remarkable production target of 1 billion MMscf/d by this year. However, repeated attacks on Khor Mor have limited gas production to half of that amount as of June 2024.
The April attack on Khor Mor appears to have been strategically timed by an alleged pro-Iranian faction within the Popular Mobilization Forces, a coalition of Shia militia armed groups. The perpetrators waited until al-Sudani, fresh off his Washington trip and the Erdoğan visit, was able to project an aura of authority, both domestically and internationally. For almost a month, Iraq had seemed able to function like a normal state with the head of government’s power seemingly unquestionable.
The timing of the strike by the very forces instrumental in elevating al-Sudani to power delivered a public rebuke. Beyond setting the Khor Mor project back yet again, they aimed to pierce his illusion of control and expose a crucial truth: real power in Iraq lies beyond the ceremonial handshakes and signed agreements. Instead, it resides within the loose web of militia groups that wield a monopoly on violence sufficient to derail any government policy or plan that does not enjoy their blessing.
Investment Enthusiasm Dampened
The Khor Mor attacks over the past two years have had profound implications on investment, particularly among U.S. energy firms. During al-Sudani’s April visit to the U.S., key deals and MOUs bolstering the Iraqi-U.S. economic relationship were signed with companies focused on energy, such as General Electric, Honeywell, Baker Hughes, ARC Energy, and KBR. Iraq struck these agreements with the hope of supporting its goal of achieving self-sufficiency in natural gas and electricity production – a vision consistently supported by various U.S. administrations. If realized, this strategic trajectory, endorsed by both the current and former Iraqi prime ministers, would move Iraq toward not only energy independence but also a potential future as a gas exporter.
Following al-Sudani’s visit to Washington, a window of opportunity emerged for renewed U.S. investment in Iraq’s hydrocarbon sector. The Iraqi Ministry of Oil delayed the country’s fifth and sixth oil and gas licensing rounds, which originally had been slated for April, to May in a move likely timed to attract U.S. energy companies in the wake of al-Sudani’s visit. However, no U.S. companies placed bids. Instead Chinese firms secured 10 out of the 13 awarded contracts. This result suggests that efforts to undermine U.S. confidence in the Iraqi investment climate have been successful.
While Chinese energy investment could potentially help Iraq achieve electricity self-sufficiency in the long term, it’s unlikely that it would have the same strategic impact on either pro-Iranian factions within Iraq or Tehran’s geopolitical influence as a scenario in which such progress is driven by American energy investment and Washington’s strategic guidance. Therefore, for Iran and its friends in Iraq, Beijing serves as a counterbalance to U.S. political and economic influence in Iraq.
The Khor Mor attack serves as a powerful reminder to U.S. energy companies and regional powers like Türkiye of the risks that investment in Iraq’s energy sector carry the risk of entanglement in the complex web of regional power plays. Tehran’s message to potential investors serves as a stark deterrent: “Venture into Iraq at your own peril.”
Türkiye’s Development Road
Al-Sudani’s visit from Erdoğan in Baghdad after his return from Washington significantly boosted their countries’ economic cooperation, with the signing of a comprehensive package of 26 agreements covering a number of areas, the centerpiece being the multibillion-dollar Development Road project. The presence of UAE and Qatar delegations at the signing ceremony suggested their potential role in financing this ambitious project.
If completed as envisioned, the Development Road would consist of a network of highways and railways connecting Iraq’s oil-rich Basra province with Türkiye that could serve as a conduit for Asian goods flowing to Europe while attracting Gulf tourists with the allure of Anatolian vacations. It would also streamline the flow of Turkish goods and produce into Gulf markets. This means that for the first time since the collapse of the Ottoman Empire, Türkiye, a historical and geopolitical rival of Iran, would once again find itself at the gate of the Gulf waters through trade, enhancing Ankara’s regional standing.
Moreover, the project could carry broader implications. Both Türkiye and Qatar have harbored ambitions of constructing a pipeline through Iraq to transport Qatari natural gas to Turkish markets. While it remains uncertain whether this remains a component of their strategy, Qatar Energy’s substantial interests in Iraq, as part of a TotalEnergies contract, underscore significant potential for future development. Even if the Qatar-Türkiye pipeline never materializes, with the right investments, Iraq could emerge as a gas exporter to Türkiye.
Outcome of U.S.-Iranian Competition
For multiple U.S. administrations, fostering Iraqi energy independence has been a key strategy to countering Iran’s significant regional political and economic leverage. This approach has involved advocating for stronger energy collaboration between the Kurdistan Regional Government (KRG) and the Iraqi federal government, along with American financial support in scaling up Khor Mor gas output to meet the needs of power facilities in southern Iraq. Furthermore, the United States has been instrumental in facilitating electricity linkages between Iraq and the Arab Gulf states. Initiatives focused on exporting electricity to the Iraqi grid through both the Gulf Cooperation Council Interconnection Authority (GCCIA), and separate interconnections with Saudi Arabia and Jordan by year’s end mark a step toward lessening Iraq’s dependence on Iranian energy sources.
These ambitions, however, clash with Iran’s strategic interests. Tehran has fiercely opposed Western-led efforts to help Iraq become energy independent, employing political and covert military tactics to undermine them. For years, suspicions have lingered that Iran uses armed groups it influences within Iraq to disrupt Baghdad’s progress in boosting gas production. This suspicion gained weight after the 2022 Iranian missile attack on the house of the Kurdish CEO of KAR Group in Erbil. This attack followed a successful pro-export campaign by the KRG. U.S officials believed it was a clear warning from Tehran against any plans to expand gas production.
This geopolitical competition has severely hindered Iraq’s economic development and affected its citizens. Clearly, Iran appears to be winning this battle, having largely sidelined U.S. energy companies. This dominance is a result of several factors. U.S. firms have been bogged down by the Iraqi government’s endemic corruption, excessive bureaucracy, and complex regulations, making it hard to operate in the country. Security risks combined with the growing political influence of pro-Iranian groups in Baghdad have further discouraged investment. Finally, the Iraqi government’s contracts haven’t been favorable to U.S. corporate interests, making Chinese firms a more attractive partner. As a result, U.S. companies that already had Iraqi operations have decided to sell their stakes to their Chinese competitors.
By focusing on primarily on its objective of countering Iranian influence and rolling back its political and economic dominance in Iraq and in the broader Middle East, Washington’s policies have hindered Iraqi stability and development to the detriment of the Iraqi people. Therefore, a more nuanced approach is necessary.
Shifting Focus from Geopolitics to People
The brutal geopolitical competition between Tehran and Washington has highjacked the narrative surrounding Iraq’s energy sector. Their cynical game of one-upmanship has overshadowed the most critical element: The fundamental needs of the Iraqi people. Both national and international actors have been complicit in the last two decades in framing Iraq’s energy self-sufficiency as a weapon rather than a means to ensure reliable electricity, a basic human right.
The consequences of this misplaced focus have been devastating. Years of prioritizing geopolitical conflict over infrastructure development have left people mired in darkness and the political system on the brink of collapse. Homes swelter in the summer without air conditioning, while hospitals struggle to maintain critical medical equipment. The lack of a stable electricity supply has crippled businesses, hindered economic growth and trapped countless Iraqis in a cycle of poverty. Out of frustration, Iraqis have taken to the streets almost every year protesting the failure of successive governments to meet this basic demand. The protests led to the downfall of Prime Minister Adil Abdul al-Mahdi’s government, and rampant political violence has claimed hundreds of innocent lives.
Washington’s media strategy to promote Iraq’s energy self-sufficiency has been catastrophic. The underlying message has conveyed that the Iraqi citizens’ need for reliable electricity is merely a byproduct of Washington’s broader strategy to diminish Tehran’s geopolitical influence.
To move forward, a fundamental shift in discourse is imperative. Reframing Iraq’s energy self-sufficiency as a domestic imperative and not a geopolitical trophy is the first step. Public statements from Washington should be carefully crafted and culturally appropriate to ensure their focus on the provision of a secure and reliable electricity supply for every Iraqi citizen. This reframing would characterize energy independence not as a pawn in an international and regional rivalry but as a cornerstone of domestic progress. America can assert its narrative through Voice of America and its other well-funded media outlets, yet it struggles due to a deficient public relations and media strategy that cannot find resonance effectively within Iraq.
While a purely humanitarian argument for Iraq’s energy independence may struggle to get traction in the face of entrenched geopolitical interests, the reframing of the discourse would offer a framework toward building a strategic approach that’s capable of offering a compelling solution. Despite their differences, both the U.S. and Iran have an interest in a stable and prosperous Iraq, which would not only improve the lives of millions of Iraqis but also create a more secure region, opening doors for potential economic gains for all involved.
Iraq’s vast potential is undeniable. With a large population, significant hydrocarbon reserves, and immense economic possibilities, Iraq can be a source of mutual benefit. Instead of clinging to a zero-sum mentality, a more enlightened approach is needed. Both the U.S. and Iran should seek to pursue a ”win-win” strategy.
Instead of competing for dominance, Washington and Tehran can hammer out a working framework in Iraq. Tehran could be incentivized by giving it a long-term energy deal in Iraq, something on the order of a 20-year agreement plus U.S. sanction waivers, that would safeguard its current economic interests in return for pledging to allow safe U.S. investment in the energy sector. U.S. expertise could then be harnessed to help Iraq reach energy self-sufficiency with deals to develop renewable energy systems, gas capture technologies for electricity generation, and grid management improvements and energy infrastructure modernization. The MOUs signed between Iraq and the U.S energy companies already established a good precedent for such cooperation. This joint effort between Iran and the U.S. would not only ensure a stable energy supply for Iraq and its people but also create new economic opportunities for all involved. The success of such bargaining could serve as a springboard for further cooperation between Iran and the United States that could lead to progress in tackling other issues dividing them.
However, a collaborative approach requires not only a significant shift in mindset from both U.S. and Iranian leadership but also bold moves that go beyond what has already been tried externally. A promising foundation for such a new initiative could naturally arise in Iraqi Kurdistan. Washington and Tehran should leverage the region’s established role as a successful intermediary for this purpose. The Kurdistan region’s president, Nechirvan Barzani, has played a pivotal role in reconciling other disputes, such as between Türkiye and the UAE, and he helped relieve tensions between French President Emmanuel Macron and Erdoğan through a crucial phone call. Given Barzani’s adept diplomacy at both national and regional levels, he is well-positioned to serve as an interlocutor between the U.S. and Iran. As a first step toward reducing tensions, he could provide a secure environment for Iranian and American officials to initiate exploratory dialogue. Those talks could focus on fostering economic and developmental cooperation within Iraq and lay the groundwork for broader diplomatic engagement. This approach not only capitalizes on existing unofficial diplomatic channels but also introduces a practical framework for constructive dialogue that’s driven by Iraqis themselves.
This could succeed only after the U.S. and Iran recognize that a stable and prosperous Iraq serves their long-term interests better than a country torn by instability. This perspective, especially crucial for Tehran, may be challenging to realize, but the potential benefits are undeniable. A stable Iraq, free from the grip of a larger power struggle, could become a symbol of progress and a bridge between regional powers. It is time for the U.S. and Iran to move past immediate gains and adopt a strategy that prioritizes long-term stability in which human lives are given precedence. This can only be achieved by focusing the needs of the Iraqi people through a more constructive and less confrontational path than the one that has defined Washington-Tehran relations for the past four decades. The foundation of this new path can be laid when Iraqis play a pivotal role in its creation.
Dr. Yerevan Saeed is the Barzani Scholar in Residence at American University’s School of International Service and a non-resident fellow at the Arab Gulf States Institute in Washington. Dr. Saeed is a political analyst who researches and writes on security, political, and energy issues in the Middle East, focusing on Iraq, Turkey, Iran, the Gulf, and the Levant. Saeed has served as White House correspondent for the Kurdish Rudaw TV and, from 2009-2013 he worked with private sector intelligence firm Stratfor. Previously, he was a journalist who worked with several media outlets, including The New York Times, NPR, The Wall Street Journal, The Boston Globe, BBC, and The Guardian (2003-07).
The views expressed in this article are those of the author and not an official policy or position of the New Lines Institute.
