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Iraq's $8 bil US energy deals seen at risk if Baghdad embassy closed

Highlights

Baghdad signed deals with five US companies in Aug

Iraq granted US waivers to import Iranian energy

Waivers could be under threat from potential embassy closure

Dubai — Iraq's $8 billion worth of deals with US energy companies and waivers for OPEC's second largest producer to import Iranian gas and power are under threat from Washington's warnings it might close its Baghdad embassy due to lax security, analysts say.

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Baghdad's heavily fortified green zone, home to the US embassy and other diplomatic missions, has been the target of rocket attacks which have intensified in recent weeks in a country still struggling to control armed groups linked to Iran. The attacks began to ratchet up after the US assassinated top Iranian commander Qassem Soleimani and Iraqi paramilitary chief Abu Mahdi al-Muhandis in Baghdad in January, drawing vows to retaliate from Iranian-aligned groups in Iraq.

"The closure of the embassy will be a loud signal that the US is unhappy with the situation in Iraq and that will bring diplomacy, trade, security support and aid to a standstill," Iraqi analyst Sajad Jiyad said. "Without Washington's blessing and support, it is hard to see how energy companies can fulfil some of their contractual obligations or even try to agree on deals and their implementation with Baghdad."

Iraq's deals with US energy companies, signed during Iraqi Prime Minister Mustafa al-Kadhimi's visit to Washington in August, were hailed by US Secretary of Energy Dan Brouillette as "key to Iraq's energy future," according to a US Department of Energy statement Aug. 19.

Five companies

The deals with five companies include an upstream pact with Chevron, and power agreements with GE. The other companies were Baker Hughes, Honeywell and Stellar Energy. GE, Stellar Energy and Honeywell couldn't be reached for comment on the impact of a potential embassy closure on the deals.

Chevron said it does not comment on matters of commercial nature, while Baker Hughes said its agreement was just a memorandum of understanding and "is not specific to a project/field but rather a non-binding agreement to explore future opportunities."

The closure of the embassy would sour ties between Washington and Baghdad and could lead to "to domestic opposition to commercial deals with US companies," senior director at the BCG Center for Energy Impact, Raad Alkadiri, said.

"Credible threats or an upsurge in local violence are what will prompt US companies to act," he added.

ExxonMobil retreat

The security situation in Iraq prompted ExxonMobil, which operates the giant West Qurna 1 field, to withdraw foreign staff from the country in May last year, drawing the ire of then oil minister Thamer al-Ghadhban.

"ExxonMobil has programs and measures in place to provide security to protect its people, operations and facilities," a company spokesperson said, declining to comment on current staffing levels and the potential closure of the embassy.

More recently in March, two US and a UK national were killed in a rocket attack on a military base in Taji, north of Baghdad.

Washington already plans nearly to cut its forces in Iraq by nearly half to 3,000 by the end of October, a move that is likely to further destabilize the country, given the intensified attacks from a resurgent self-styled Islamic State group.

US waivers

If the embassy were to close it could also have repercussions for the waivers Baghdad has been granted since 2018 to continue importing Iranian gas and electricity, which are under US sanctions. However, the duration of the waivers was cut in September to 60 from 120 days, a signal that Washington's patience with Iraq is wearing thin.

In the Aug. 19 statement, Brouillette emphasized the need for Iraq to secure energy independence from Iran.

A potential closure of the US embassy might also prompt other foreign missions to leave too, Iraqi Foreign Minister Fuad Hussein said Sept. 30. The country was "unhappy" with the US warning and hoped Washington would reconsider its "preliminary" decision to close the embassy. The Iraqi government was taking measures to secure the green zone, the airport and airport road, he said.

"This message is a wrong message, and we hope the US government or the US Administration reconsiders this decision," Hussein said. "There is a possibility the withdrawal of Americans from Baghdad could lead to other withdrawals, and this is wrong."

Attacks in Kurdistan

The rocket attacks have not been limited to US bases, but also the supply convoys for Washington and its allies. Six rockets were also launched on coalition bases in Erbil in the semi-autonomous Kurdish region of northern Iraq on Sept. 30, highlighting a fresh security threat.

The withdrawal of other foreign missions would be detrimental to Iraq's energy sector, which relies on Western and Asian companies to help pump its oil.

"If the US does close its embassy in Baghdad then it will likely be followed by other nations from Europe and elsewhere," Jiyad said. "This will also lead to foreign nationals from those countries being withdrawn and bring some operations to a standstill."