ISSUE BRIEF Iraq’s Energy Security Strategy: A Path to Diversity and Energy Independence DECEMBER 2020 ABBAS KADHIM AND SARA VAKHSHOURI lectricity is a top national security priority for most countries. Thus, access to an uninterrupted flow of low-priced and adequate energy supplies to fuel power generators and sustain the supply of electricity lies at the heart of their energy strategies. On taking office in October E2018, Iraq’s former minister of electricity, Luay al-Khatteeb, described elec- tricity as a “national security priority.” In a similar vein, in his address to the Atlantic Council on February 7, 2020, US Energy Secretary Dan Brouillette said that in his upcoming meetings at the Munich Security Conference he planned to emphasize the fact that “energy security is indeed national secu- rity.”1 For Iraq, a country depleted by wars, terrorism, and incompetent gov- ernance, economic recovery is impossible unless infrastructure is restored to functional levels. Iraq’s electricity sector needs immediate attention. Iraq’s electricity infrastructure has been neglected since the 1980s. In that decade, Iraqi funds were diverted to the staggering cost of the Iran-Iraq War (1980-88). Early in the 1990s, Iraq’s electricity facilities were bombed by a US-led coalition during the Gulf War (1990-91). Following the war, restoration of these facilities was severely restricted as a consequence of stringent eco- nomic sanctions imposed on Iraq by the United Nations Security Council. The sanctions would remain in place until Saddam Hussein’s regime was toppled The Atlantic Council’s Iraq in a US-led invasion in 2003. Although Iraq’s new political system, which has Initiative provides transatlantic been in place since 2003, has enjoyed wide international support and the and regional policy makers with gradual removal of sanctions, the electricity sector has witnessed no real im- unique perspectives and analysis provement. On July 15, 2020, Iraqi Prime Minister Mustafa al-Kadhimi said on the ongoing challenges and that although Iraq has spent more than $62 billion on electricity since 2003 opportunities facing Iraq as the adequate supplies are still a challenge due to bad planning and corruption. country tries to build an inclusive “The state bought electricity stations that depend on gas and Iraq has no political system, attract econom- ic investment, and encourage a vibrant civil society. 1 Atlantic Council, “US energy priorities abroad: A conversation with US Secretary of Energy Dan Brouillette,” February 7, 2020, video, 40:07, https://www.youtube.com/watch?v=RTN-XzyrY7E. ISSUE BRIEF Iraq’s Energy Security Strategy: A Path to Diversity and Energy Independence gas,” he said.2 Iraq does have gas, but it has not taken mea- an exclusive advantage at the expense of the reintegration of sures to fully capture and monetize this resource. other regional players into Iraq’s economic network. Indeed, such reintegration has become increasingly difficult and in- Across the country, terrorists continue to target the elec- convenient, particularly given mutual hostilities between tricity infrastructure and make the task of providing the ser- certain Arab countries and Iran. The US position on Iraq-Iran vice very difficult.3 Moreover, with a population boom and relations has fluctuated over the years from pragmatic toler- the import of appliances that lack energy-saving consider- ance to strong disapproval and “maximum pressure,” with ations, Iraq’s energy demand has significantly increased demands that Iraq disentangle itself from its relations with over its pre-2003 levels. This situation has been exacer- Iran and pursue relationships with Arab neighbors instead. bated by wasteful consumption by some Iraqis who treat However, Iraq-Gulf economic cooperation is unlikely to pick electricity as an entitlement to be received at a very low up in the event Iraq distances itself from Iran. fee or at no cost at all. Therefore, the government has little political room to increase prices in order to reduce or elimi- In the case of energy supplies, there is a need for infra- nate inefficient and unnecessary energy consumption. structure and bridges of trust that are hard to establish. For instance, Iraq signed an agreement in 2019 with the Gulf These challenges are made worse by corruption, incom- Cooperation Council (GCC) to link their electricity systems petence, and mismanagement at the Iraqi Ministry of through Kuwait. This agreement would require the estab- Electricity, which has been treated in the post-2003 politi- lishment of the necessary infrastructure on both sides of cal system as a money-generating machine for the parties the borders a full year before electricity can be supplied. that nominate and control its upper leadership. If electricity From the Iraqi perspective, the ideal outcome would pro- is indeed a national security concern in Iraq, the electricity vide “the best products, and the best price, with the best crisis has so far been a national failure for which Iraq’s state service, with the fastest and best solutions—but all have and society are to blame. to be coupled with knowledge and technology transfer.”4 At present, and from a trade standpoint, the Iraqi govern- ment considers Iran as the source that already meets these The Other Side of the Crisis: Energy Dependence standards. But it is not all about economics and trade. The Iraq’s ability to overcome the electricity crisis is reduced political consequences of choosing a trading partner are further by its lack of self-sufficiency in the fuel used to also important. In light of US sanctions and its “maximum generate power. Although the country is a leading pe- pressure” policy toward Iran, Iraq must consider its options troleum producer and the second-largest exporter in the in an effort to avoid suffering similar economic and politi- Organization of the Petroleum Exporting Countries (OPEC), cal consequences. Thus far, US policymakers have realized Iraq’s own gas has been unexploited or flared for decades that Iraq is in no position to be energy independent and even while Iraq has to import gas to operate its power gen- have no practical advice on how to accomplish any signif- erators. After Saddam’s ouster in 2003, Iraq’s Arab neigh- icant measure of such independence. As a result, Iraq has bors, particularly oil-producing Arab Gulf states—allies of received a series of waivers from the United States to con- the United States—refused to cooperate with the new Iraqi tinue to import Iranian gas to generate electricity and, in government, politically or economically. US efforts to per- peak times, import part of its electricity supply from Iran. suade these states to normalize relations with Iraq have proven ineffectual thus far. Iran’s Natural Gas and Electricity Production On the other hand, post-2003, Iran embraced the Iraqi govern- Iran has one of the world’s largest proven natural gas re- ment and established a robust system of political, economic, serves. It hosts about 17 percent of the world’s proven natural security, and social relations. Seventeen years on, Iraq-Iran gas reserves. Iran is also the world’s third-largest dry natural relations have developed to a degree that has granted Iran gas producer, after the United States and Russia. About 80 2 Media Office of the Prime Minister of Iraq, “The press conference of the prime minister, Mr. Mustafa al-Kadhimi, during his visit to Basra Governorate,” July 15, 2020, video, 24:30, https://www.youtube.com/watch?v=t670I8fldJI. 3 Baxtiyar Goran, “Armed groups sabotage Iraq’s already desperate electricity infrastructure, deepen power crisis,” Kurdistan 24, July 29, 2018, https://www. kurdistan24.net/en/news/84b0bdc4-bec1-442c-a7f4-2302da9ae502. 4 Waylon Fairbanks, “‘We Have Very Little Time’: MEES Sits Down with Iraq’s Electricity Minister,” MEES, February 15, 2019, https://www.mees.com/2019/2/15/ power-water/we-have-very-little-time-mees-sits-down-with-iraqs-electricity-minister/63226520-3147-11e9-88ab-b16d8ba91504. 2 ATLANTIC COUNCIL ISSUE BRIEF Iraq’s Energy Security Strategy: A Path to Diversity and Energy Independence Figure 1: Iran Natural Gas Consumption (2009-19) (billion cubic meters) 250 200 150 100 50 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Source: BP Statistical Review of World Energy 2020 percent of Iran’s gas reserves are from non-associated gas However, US sanctions on Iran’s crude oil and condensate fields. In 2019, Iran produced about 8.011 trillion cubic feet exports since 2016 have been undoubtedly effective in cut- (tcf) [244.2 billion cubic meters (bcm)] of natural gas and con- ting its oil and condensate exports, which have bottomed sumed 7.335 tcf (223.6 bcm) of natural gas domestically.5 out at near zero. Since the implementation of the new sanc- tions regime, beginning in November 2018, Iran has cut its US Sanctions and Natural Gas Production Capacity crude oil production to adjust it to export capability. With reduced production of crude oil, Iran’s natural gas liquids US sanctions on Iran’s energy industry, which were first (NGLs) production also dropped.6 imposed by the Obama administration in 2010, were re- inforced in 2012 and tightened in 2018 by US President Based on Iran’s 6th Five-Year Economic Plan (2016-21), its Donald J. Trump when the United States withdrew from the gas production should reach 16,757 tcf (474.5 bcm) a year Iran nuclear deal. These sanctions have had a significant or [1,300 million cubic meters a day (mcm/d)] by March and undeniable impact on Iran’s gas development projects. 2021. This is almost twice its production in 2018.7 It is hard to reasonably anticipate that Iran will hit its planned pro- However, despite years of unilateral and multilateral sanc- duction target.