London — Iraq is again becoming a viable destination for energy investment in the Middle East after the final defeat of Islamic State and the election of a new government revived interest in the region's second-largest oil producer. The US, Qatar, Saudi Arabia and even Iran are now vying for a share in the spoils.
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The latest wave of high level energy diplomacy involving Baghdad came on Sunday when oil minister, Thamer Ghadban, met with his counterpart in Qatar to discuss potential investments and cooperation in oil and gas, according to a statement on the ministry's website.
Qatar is the world's largest exporter of liquefied natural gas and a major investor in energy assets beyond its borders.
The meeting came as the National Iranian Oil Company (NIOC) over the weekend said it plans to set up a representative office in Baghdad by next March. Meanwhile, US secretary of state Mike Pompeo spoke with Iraqi prime minister Adel Abdul Mahdi partly to move an ExxonMobil project forward, China's official Xinhua news agency reported. Saudi Arabia is also looking to push forward a gas pipeline to Iraq through Kuwait, the kingdom's oil minister Khalid al Falih told journalists in April.
The high level round of energy diplomacy has not gone unnoticed. Baghdad needs investment dollars to develop its energy infrastructure both to meet domestic demand for its nearly 40 million people. The world's fifth-largest holder of proven oil reserves has suffered from internal strife since the US-led invasion in 2003, which triggered an initial surge of international oil companies into the country. Three years ago Islamic State militants set fire to part of the Baiji refinery -- the country's largest plant -- and threatened oil infrastructure in their bid to establish a caliphate.
"Iraq is one of the top countries with proven oil reserves, the industry along with the country needs a significant transformation," Ismail Maraqa, chairman of the ME region board at PwC, told Platts. "I believe that the improved security situation is what's triggering this interest from NOCs and IOCs."
Baghdad's strategic importance as a destination for energy investment has also been boosted by political divisions within the region. An Arab embargo on Qatar has divided much of the Gulf Co-operation Council and seen Doha abandon its membership of OPEC. Meanwhile, Iran sees a potential ally in Baghdad after it was isolated by US sanctions targeting its oil and gas exports.
The US too is pushing to defend its influence in Iraq's oil sector and has granted the country strategically important concessions as it seeks to pressure neighboring Iran with sanctions. The White House imposed sanctions on Iran last year, and Iraq was granted a waiver on its Iranian electricity imports. However, this is conditional on Iraq being able to show that it is making an effort to diversify its energy sources.
Natural gas is also encouraging Gulf states to engage with Baghdad. In early April, Saudi oil minister al Falih said feasibility studies on a gas pipeline linking the kingdom to Iraq through Kuwait would begin within weeks.
"Despite Iran's close ties to Baghdad, US allies including Saudi Arabia have been attempting to increase their soft power in Iraq but have faced considerable resistance," said Mohammad Darwazah, director of geopolitics and energy at Medley Global Advisors. "Energy cooperation between KSA and Iraq however appears to be one avenue the kingdom is using to expand that soft power; whether it's the decision to bring Iraq into the JMMC (effectively OPEC's decision making body) or signing an MoU to extend transmission lines from the kingdom to Iraq." Iran's NIOC will try to open an office for the Iran oil ministry in Iraq by the end of the current Iranian year, according to the oil ministry's news service Shana.
At the moment, Iran supplies around 19% of Iraq's total gas-fired power consumption through an interconnection. This is used to generate around 1100 MW of electricity, out of a maximum effective capacity of about 15 GW, according to the International Energy Agency. Gas is playing an increasing role, with total gas-fired generation rising to 55% of the power generation mix from 20% in 2012, IEA data show.
Iran plans to raise gas exports to Iraq from a current level of 15 million cubic meters/d to an eventual rate of 35 million cubic meters/d. However, Iraq has said it will only import as long as its own gas production is insufficient.
Under the US pressures, Iran had to agree to receive payment in local Iraqi currency as opposed to the euro, which is written in the contract.
Iraq may be taking the right steps to recover after years of fighting and economic instability. But getting the needed foreign investment will mean navigating an increasingly difficult political sphere in the region and abroad.
-- Miriam Malek, firstname.lastname@example.org
-- Edited by Claudia Carpenter, email@example.com