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Iraq's power cuts seen exacerbated by Iranian outages, Islamic State attacks on infrastructure

Highlights

Iranian gas, electricity imports hit by domestic outages

Islamic State intensifying attacks on power lines, pylons

Iraq under pressure to wean itself off Iranian imports

Iraq's power cuts this summer will be exacerbated by blackouts in Iran, which supplies a big chunk of electricity and gas for power generation to its neighbor, and recurrent Islamic State attacks on infrastructure at a time when the Baghdad government is nearing the end of its term.

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OPEC's second-biggest producer has long suffered from severe power outages in the hot summer months, where temperatures in the south can top 50 C, leading to deadly protests in the past.

However, this year Iraq has suffered from intermittent electricity and gas supply from Iran, which is grappling with a drought and power issues that have slowed energy imports. Added to Iran's outage is the difficulty Iraq is facing in paying billions of dollars of dues to Tehran, which has been under US sanctions since 2018, a status that complicates Baghdad's ability to settle its arrears without the threat of financial repercussions.

"The current crisis has been compounded by years of mishandling the electricity portfolio," said Harry Istepanian, a senior fellow of the Iraq Energy Institute. "While reduction in gas and power exports from Iran have badly impacted generation, combined with the sabotage of transmission lines, the shortage is expected to be deeper this summer as the ministry of electricity has not prepared well for contingencies due to late payments by the ministry of finance for the maintenance works. Failure to meet the targets for investment plan in capturing the flared gas, and the accumulated Iranian debts for the power and gas purchases are among many other reasons."

US waivers

Since 2018, Iraq has been receiving US waivers to keep importing Iranian gas and electricity without the threat of sanctions. However, Iraq's over-reliance on Iranian energy imports and delays in capturing its own flared gas for power generation, which is mainly gas-based, is unlikely to abate soon.

Iraq was the world's second worst flaring nation after Russia in 2020, burning some 17.37 Bcm last year, according to the World Bank. Iraq has been the world's second worst gas-flaring nation since at least 2016, World Bank figures show.

Cash-strapped and politically-hobbled Iraq has been slow to capture its associated gas, which forms the majority of its production, due to the financial crisis gripping the country and its complicated ties to Iran, which still wields power in its neighbor.

"Iran's curtailment of electricity and gas for power generation has also had an impact, particularly in southern provinces," said Patrick Osgood, senior Iraq analyst at Control Risks. "But Iran's own seasonal demand spike means Iranian supply is likely to remain volatile, especially as they are still not being paid by Iraq."

Islamic State attacks

The interim government of Prime Minister Mustafa al-Kadhimi has vowed to resolve the electricity crisis but its efforts are stymied by a resurgent Islamic State, which has been attacking power lines and pylons, and his cabinet's inability to wean itself off unreliable Iranian imports.

The Islamic State "clearly coordinated this sabotage campaign and appears to have a sophisticated understanding of both where they can conduct these hit-and-run type attacks and the choke points in Iraq's grid, including the Iran-Iraq transmission lines," said Osgood.

"The electricity ministry has not kept up routine maintenance since at least the start of the October 2019 protests, a situation made worse by the fiscal crisis following the onset of the pandemic."

With oil prices surging this year, Iraq's financial crisis may not be as severe as last year, but delays in implementing key gas and power projects may leave the country deeper in crisis.

"The government has very limited short-term options to stabilise power supply, beyond surging maintenance crews in southern provinces and security capacity around major transmission lines in central provinces around areas of the active Islamic State insurgency," said Osgood.

Gas projects

"The fundamental problem with the electricity sector is that no-one pays the state for their power, and nearly all the revenue from consumers goes to private generator operators who provide an insufficient, highly polluting service at a high cost."

Iraq is seeking to spend, with certain energy partners, $15 billion to boost its gas production, oil minister Ihsan Ismaael said May 3. However, many of these projects have been years in the making, with little progress due to financial constraints.

The Kadhimi government, which will step down once a new cabinet is chosen following the Oct. 10 parliamentary elections, has been unable to add much new power generation capacity and has failed to resolve the main problem of power transmission and distribution.

"The parliament needs to amend the current electricity law and legislate new laws to allow more participation of the private sector in developing the sector in order to meet future demand for energy," said Istepanian. "The sector is marred by many technical and financial problems and the government is no longer able to solve them alone."