Dubai — Iraq is set to suffer from acute power shortages as Iran plans to cut its gas shipments to its neighbor due to outstanding payments, the electricity ministry said in a Dec. 27 report by the official Iraqi News Agency.
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Iran intends to lower gas supply to cash-strapped Iraq to 3 million cu m/d (105 MMcf/d) from 5 million cu m/d, said Ahmed Musa, spokesman for the electricity ministry, according to INA. This reduction follows previously announced plans to shrink exports from 50 million to 5 million cu m/d.
Iran's energy minister is due in Baghdad Dec. 29 to discuss Iranian gas supply and the missed payments, Musa added.
Iraq is under heavy US pressure to wean itself off Iranian gas and electricity imports amid sanctions imposed by Washington on Tehran's energy sector. Since 2018, Iraq has received US waivers to continue to import Iranian energy, but in recent months the duration of these exemptions has been shortened.
Iraq aims to import electricity from Saudi Arabia, the six-member Gulf Cooperation Council, and Jordan to help plug power shortages.
Iraq also plans to capture associated gas that is mostly burned, with the OPEC producer branded the world's second worst gas flaring nation after Russia in 2019, according to a World Bank report.
But the Iraqi government has struggled to pay public sector salaries and other essential services as it grapples with a severe financial crisis exacerbated by the pandemic and low oil prices.
Oil revenue is no longer sufficient to cover essential payments and the government has to borrow locally to fund its yawning fiscal deficit, which is forecast to widen further in 2021.
The financial strain has contributed to Iraq's lobbying to the OPEC+ alliance for a more lenient production quota -- pleas that have largely fallen on deaf ears, due to the country's history of non-compliance. But the producer group is scheduled to boost production by a collective 500,000 b/d in January, which will provide Iraq with some room to pump and export more.
Iraq is OPEC's second largest producer and pumped 3.80 million b/d in November, in line with its quota but without the so-called "compensation cuts" required for previous quota violations, according to the latest S&P Global Platts survey of OPEC+ production.