Iraq Is Fed Up With Relying on Iran, but Has No Alternative for Now

Suffering from frequent dust storms and incapable of meeting its electricity needs, Iraq is caught between dependency on Iran's supply of power and generous loans from China that carry their own obligations

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People navigate a street during a sandstorm in Baghdad, Iraq, in May.
People navigate a street during a sandstorm in Baghdad, Iraq, in May.Credit: Hadi Mizban /AP
A photo of Dr. Zvi Bar'el.
Zvi Bar'el
A photo of Dr. Zvi Bar'el.
Zvi Bar'el

Ten dust storms have hit Iraq so far this year. Dozens have died, hundreds have been hospitalized with respiratory problems, visibility is limited and the future looks dim. Weather forecasters in Baghdad say the country will experience frequent dust storms throughout the entire summer.

But even without them, the weather is hard to take. On Wednesday, the temperature in Baghdad rose to 44 degrees Celsius (111.2 degrees Fahrenheit) and was just a little lower in the semi-autonomous Kurdish region in the country’s north.

Air conditioners are power-hungry appliances. When I visited Iraq in the summer of 2003, the year that U.S.-led coalition forces invaded the country, I saw thousands of air conditioners, refrigerators, electric heaters and home electronics crowding the sidewalks in front of stores. Even then, Iraq was hot. ”How are you going operate all these air conditioners when there’s no electricity?” I asked. The answer I got was: “The power will come soon; in the meantime, people are buying them to be ready.”

Children look at buffaloes during a sandstorm in Baghdad, last week.Credit: AHMED SAAD/REUTERS

These air conditioners were installed over the following two decades, but electricity remains sparse. The country has proven oil reserves amounting to around 145 billion barrels – 18 percent of all the petroleum in the Middle East. It’s the sixth-biggest oil producer in the world, but it can’t provide its citizens with enough electricity and has to buy natural gas from Iran.

Iranian supplies aren’t reliable. Iraq owes about $1.5 billion for gas that it previously bought from Iran, which recently announced that it would halt deliveries if the debt isn’t paid. In April, Iraqi Oil Minister Ihsan Abdul-Jabbar Ismail visited Iran to arrange payment and sign a new agreement to supply 50 million cubic meters of natural gas daily for the next five years.

However, upon his return, Ismail encountered an unexpected obstacle: Iraq’s Federal Court issued a ruling limiting the authority of the country’s caretaker government to spend te money. “If we can’t repay our debt to Iran, we will lose 8,000 megawatts a day [of the 24,000 megawatts needed during the summer months],” the minister warned.

A sandstorm in Najaf, Iraq, last week.Credit: REUTERS/Alaa Al-Marjani

Iraq’s caretaker government, headed by Mustafa Al-Kadhimi, knows full well what will happen if the flow of Iranian gas is halted. Last year, power outages led to major protests in the south, and in 2019 protests over electricity supply led to the fall of the government.

Iraq invested more than $75 billion in its electrical system between 2005 and 2020, according to its state budget. But the true amount allocated was much lower because of embezzlement, theft, mismanagement and massive waste. Iraq can’t produce enough gas or expand its infrastructure to deliver the power it needs. The last state budget allocated $11 billion for electricity – but 85 percent of that goes to paying salaries, maintenance of the existing grid and the development of alternative energy sources.

Iraqi Prime Minister Mustafa Al-Kadhimi arrives to supervise a military operation against Islamic State in the western region of Anbar, in April.Credit: Reuters / Thaier Al-Sudani

Baghdad needs to pass a 2022-23 budget to set its fiscal priorities, but since October, when parliamentary elections were held, politicians have struggled to select a new president with the power to appoint a prime minister and form a government. Arguments between the Shiite factions and within them, as well as the rivalry between the two big Kurdish parties (the Kurdistan Democratic Party and the Patriotic Union of Kurdistan) have complicated the process of appointing a president, who has to be Kurdish under the constitution. There is also fighting between the Sunni political factions. As a result, Iraq has been operating for the past seven months on a transition budget based on last year’s spending package.

Iran has contributed to the political deadlock by pushing for its allies to be named president and prime minister. Iraqis have accused Tehran of using the threat of stopping gas and water exports to pressure Iraqi politicians to agree to their candidates.

Iraq is trying to free itself from reliance on Iran and in January signed a memorandum of understanding with Saudi Arabia to link the south’s power grid to the kingdom’s. But the deal remains just on paper. Even if it is finalized, it will take many months before Saudi electricity is powering air conditioners in Southern Iraq.

People walk down al-Rasoul street leading to the Imam Ali shrine during a sandstorm in Iraq's holy city of Najaf, in May.Credit: QASSEM AL-KAABI - AFP

China has identified opportunities arising from Iraq’s chronic power shortage, granting the country a $10.5 billion loan last year that will be used to invest in infrastructure, with plans to build power stations, thousands of schools and an airport. The terms are much easier than anything the International Monetary Fund offers. They don’t call for heavy conditions like economic, legal and human rights reforms and anti-corruption measures. However, the money won’t arrive all at once, and is being provided over several years. The amounts depend on the size of a special fund established for repaying the loan, whose capital will come from a portion of oil profits being deposited in it as a guarantee.

The loan, as well as investment agreements that come with it, has aroused concerns about the prospect of China gaining control of the Iraqi economy, including its oil reserves. Iraq has watched as China has effectively gained control of Iranian oil production via a multi-year agreement that promises investments worth hundreds of billions of dollars to Tehran in exchange for selling oil to China at discounted prices and the right to build ports and airports in Iran.

In order to prevent China from gaining control, Baghdad has turned to the Russian company Lukoil and the U.S.’ ExxonMobil with a request that they break off negotiations with China about selling their stakes in Iraqi oil fields. As the Iraqis see it, partnerships with Western companies in developing its petroleum reserves not only prevent the Chinese from establishing monopoly control over its energy sector, but also boost ties with Russia and the West, especially the U.S.

A policeman at an oil field operated by ExxonMobil in Basra, Iraq, 2020.Credit: REUTERS/Essam al-Sudani

For now, it appears that the effort to convince these companies to remain in Iraq – a campaign that includes promises of unspecified benefits – has succeeded in halting China’s plans to increase its stake in Iraqi oil fields. But it’s difficult to say how long the two companies will continue to accede to the government’s request. There’s no guarantee that the next government, when it is formed, won’t reverse the policy and choose to expand China’s presence. China is already Iraq’s third-largest trading partner and its largest foreign investor.

China has another business advantage, which derives from its business relationship with Iran’s Islamic Revolutionary Guard Corps. That ensures that Chinese undertakings in Iraq enjoy the protection and aid of the Shiite militias that are allied with Iran. By contrast, the militias are determined to expel all other foreign energy companies, especially those from the U.S. In 2019, a field operated by ExxonMobil came under rocket attack; shortly before that, the field’s foreign workers were evacuated to Dubai amid a period of rising tensions between Iran and the U.S. and threats by militants.

Iraq would like to free itself from dependence on Iraq and reduce China’s involvement, but it is trapped by neighbors who are in no rush to help and by deadlocked internal policies that prevent it from establishing immediate policies, much less a long-term strategy. All it can do is wait for the next explosion of violent anger on the part of ordinary Iraqis who want nothing more than to run their air conditioners during the long, hot summer and their heaters when winter comes.

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