Iraq power crisis may loom as US ends sanctions waivers for Iranian electricity

The US has decided it will not renew power sanctions waivers that Iraq relied on for years to import much needed electricity from neighboring Iran, National Security Advisor Mike Waltz said in a March 10 statement on social media platform X.

Iraq relied on Iran for 22% of its gas and power imports in 2024 and electricity imports have significantly contributed to Iraqi power generation for around 20 years, according to energy consultancy FGE. A statement from the US embassy said the electricity imports from Iran made up just 4% of power consumption in Iraq.

The sanctions waivers appear to only apply to electricity imports and not gas imports, but gas imports, which began in 2017, could be affected if the US were to determine the payment method Iraq uses to purchase gas from Iran violates US sanctions, Iman Nasseri, Middle East managing director at FGE, told Platts.

Iraq's electricity ministry spokesperson Ahmad Moussa said that should gas imports be forbidden, "Iraq would lose more than 30% of its electricity energy," the AP reported March 9.

Iran is allowed to export gas, but sanctions may apply to financial institutions that make the transaction for gas purchases, according to rules set by the US Treasury Department's Office of Foreign Assets Control.

"It's not clear-cut, and there is a lot of confusion right now," Nasseri said.

Gas imports from Iran fluctuate heavily depending on the season and have already dropped to seasonal lows this winter.

Ending the sanctions waivers, the last of which expired March 7, will heavily impact Iraq's ability to provide electricity and that will prove a bigger issue as the weather heats up heading into summer. Power outages have previously caused Iraqi citizens to protest in various cities, particularly in the southern city of Basrah.

FGE predicts that Iraq will be unlikely to compensate for the lost electricity generated from gas imports, which may fall to 70 MMscf/d in 2025 from a previously projected 820 MMscf/d.

However, Iraq could partially alleviate the shortage by switching to liquid fuels from gas, according to an FGE analysis.

Iraq's Electricity Ministry has asked the Oil Ministry to increase gasoil imports to 100,000 b/d from 35,000 b/d ahead of summer, Platts previously reported.

The country has also looked to diversify its electricity sources via a grid connection project with Saudi Arabia and by seeking investment to capture associated gas it can use for power generation.

For years, successive US administrations have pushed Iraq toward greater energy independence, but the waivers have been viewed as necessary to help maintain stability while the country works to attract Western investors that would help modernize the country's infrastructure to meet domestic demand.

However, Iraq has been caught in the crossfire as US President Donald Trump has sought to reimpose his "maximum pressure" campaign on Iran.

"The decision to not renew the waiver of sanctions on Iranian electricity exports was consistent with President Trump's 'maximum pressure' strategy on Iran, and that pressure on Iran would increase if Iran continued to develop a nuclear weapons capability and support terrorism across the region, including in Iraq," the statement posted on Waltz's X account said.

Waltz also encouraged the Iraqi government to retain an investment coordinator that would work with US companies seeking to invest and operate in the country, the statement said.

Iraq-Turkey pipeline

Waltz, in a meeting with Iraqi Prime Minister Mohammed Shia al-Sudani, also urged the Iraqi government to work with the Kurdistan Regional Government to reopen the Iraq-Turkey pipeline that has been closed for two years.

US pressure has mounted to reopen the pipeline that historically carried up to 400,000 b/d of predominantly medium sour Kurdish crude, and around 75,000 b/d of federal Kirkuk crude to the Turkish port of Ceyhan to serve Mediterranean markets.

That demand from the US has pushed the Iraqi government, KRG and international oil companies operating in Kurdistan into talks to resolve longstanding issues around the pipeline, but so far the parties are at loggerheads.

Two rounds of talks have failed to reach an agreement, with the last ending with a decision to form two committees comprising delegations from both governments that are set to begin meeting in the week of March 10.

One oil company source who took part in the meetings and asked to remain anonymous said the two governments still have "daylight between them," referencing multiple disagreements over payment of existing arrears and assurances that the structure of the contracts the oil companies signed with the KRG will not be altered.

"They have heard what our concerns are," one source said, referring to the Iraqi and Kurdish governments. "They can figure it out."