How Iraq Continues To Trick Washington

Back in 2020, a senior Washington-based lawyer who has long worked closely with the U.S. Treasury Department exclusively told OilPrice.com that: "Just like Pakistan was with Al Qaeda and us, we know the Iraqis are lying about Iran, but we still have to give them cookies when they visit". Cookies were presumably in abundance as Iraq's latest prime minister, Mohammed Al Sudani, rocked up to the White House last week, along with the ministers of oil, finance, trade, and electricity, the president of the central bank, and five assorted businessmen. Officially, they came to discuss bilateral security, trade, economic, and energy issues, and broader security concerns connected to the region. Unofficially, as a senior source who works closely with Iraq's Oil Ministry exclusively put it to OilPrice.com: "It was to promise a reduction in imports of gas and electricity from Iran, and gas flaring, in exchange for sanctions waivers and money from the U.S. - no change."

Given that Iraq had just signed the longest-ever deal (five years) to keep importing huge quantities of gas and electricity from Iran, it must have been difficult for Al Sudani to keep a straight face - perhaps the moustache helped cover up any smirking. Nonetheless, he did his job of offering up the usual promises, with the usual additional one of including more U.S. companies in Iraq's oil and gas sector developments. These are generally confined to engineering, procurement and construction contracts awarded to a predictable array of U.S. heavyweight companies that never work out, given the massive corruption at the heart of these Iraqi sectors, with which Western firms cannot and will not comply, as analysed in full in my new book on the new global oil market order.  Related: White House Aims to Keep Gasoline Prices in Check

In one way or another, all the major recent withdrawals of Western firms from Iraqi oil and gas sector contracts have come down to this. These include ExxonMobil's exit from West Qurna 1 and the Common Seawater Supply Project, Shell's from West Qurna 1, Majnoon and the Nebras Petrochemical Project, and BP's intended disposal of its interest in Rumaila, among many others. As highlighted by the independent non-governmental organisation, Transparency International, in its 'Corruption Perceptions Index' Iraq has been described as: "Among the worst countries on corruption and governance indicators, with corruption risks exacerbated by lack of experience in the public administration, weak capacity to absorb the influx of aid money, sectarian issues and lack of political will for anti-corruption efforts." It added: "Massive embezzlement, procurement scams, money laundering, oil smuggling and widespread bureaucratic bribery that have led the country to the bottom of international corruption rankings, fuelled political violence and hampered effective state-building and service delivery." It concluded: "Political interference in anti-corruption bodies and politicization of corruption issues, weak civil society, insecurity, lack of resources and incomplete legal provisions severely limit the government's capacity to efficiently curb soaring corruption."

Aside from this unappealing element of doing business with Iraq for Western firms, the U.S. government has multiple first-hand knowledge of Baghdad's various governments promising one thing and doing quite the opposite before. The same things are promised (to reduce gas and electricity imports from Iran, and gas flaring), and the same things are given by the U.S. (money to do both, and waivers to keep importing resources from Iran in the interim). Invariably, Iraq then renegues on everything after the money has been banked safely. Up until the signing of the five-year gas and electricity import deal with Iran, the most shocking betrayal of the U.S.'s trust in Iraq in this context had come from the fast-talking former Iraqi Prime Minister, Mustafa al-Kadhimi. He had danced the usual dance with the U.S. so well that in May 2020 Washington gave him even more money than before and the longest waiver ever given - 120 days - to keep importing gas from Iran, on the standard condition that Iraq stopped doing it soon. However, once the money had been banked and al-Kadhimi was safely back on home territory, Iraq signed a two-year contract - the longest period ever at that point - with Iran to keep importing gas from it. Washington responded by giving Iraq the shortest-ever waiver - 30 days - to keep this arrangement going with Iran before it needed to be renewed. It also hit 20 Iran- and Iraq-based entities with swingeing new sanctions, citing them as instruments in the funnelling of money to Iran's Islamic Revolutionary Guards Corps' (IRGC) elite Quds Force, which was entirely true. It added that the 20 entities were continuing to exploit Iraq's dependence on Iran as an electricity and gas source by smuggling Iranian petroleum through the Iraqi port of Umm Qasr and money laundering through Iraqi front companies, which was also true. And it also said that Washington was extremely concerned that Iraq was continuing to act as a conduit for Iranian oil and gas supplies to make their way out into the world's major export markets. This was true as well, as additionally analysed in my new book on the new global oil market order.

In fact, Iraq has long been the principal ally by which Iran has been able to evade the various international sanctions under which it has been put since its 1979 Islamic Revolution, in the first instance through the means of shared oil fields. There are many such shared fields between the two countries, but the most notable ones are Azadegan (on the Iran side)/Majnoon (on the Iraq side), Azar (Iran)/Badra (Iraq), Yadavaran (Iran)/Sinbad (Iraq), Naft Shahr (Iran)/Naft Khana (Iraq), Dehloran (Iran)/Abu Ghurab (Iraq), West Paydar (Iran)/Fakka/Fauqa (Iraq), and Arvand (Iran)/South Abu Ghurab (Iraq). The oil on the non-sanctioned Iraqi side of the border is often drilled from the same reservoirs as the oil drilled on the sanctioned Iranian side, sometimes even through long-distance horizontal directional drilling. Even if the Americans, Europeans, or any of their most trusted appointees stationed people at every single rig in every single shared field in Iraq they would not be able to tell if the oil coming out it was from the Iraq side or the Iranian side. So this has allowed for decades Iranian oil simply to be rebranded at source as Iraqi oil and shipped to wherever is required in the world. 

The other of Iraq's perennially broken promises is to reduce the flaring of gas that is produced alongside oil drilling ('associated gas') in order that it could be used for power generation or to monetise through exports. In 2017, it signed up to the 'Zero Routine Flaring initiative' to stop burning this associated gas. At the time, Iraq was second only to Russia in the amount of gas it wasted in this way. Six years later it still is - flaring over 17 billion cubic metres of associated gas last year. As also analysed in full in my new book on the new global oil market order, every three years or so Iraq announces exactly the same plan to redress this gas flaring, but with different companies involved. The last such announcement was in 2020 when Iraq's Oil Ministry signed a natural gas capture deal with U.S. oil services provider Baker Hughes to harness 200 million cubic feet per day (mmcf/d) from the Gharraf oil field (and neighbouring ThiQar site, Nassiriya), plus other oil fields north of Basra. The first stage would involve the advanced modular gas processing solution being deployed at the Integrated Natural Gas Complex in Nassiriya to dehydrate and compress flare gas to generate over 100 mmcf/d of gas. The second stage would involve the Nassiriya plant being expanded to become a complete natural gas liquid (NGL) facility that would recover 200 million standard cubic feet per day of dry gas, liquefied gas and condensate.

Nonetheless, last week saw the U.S. sign two more agreements to help Iraq reduce gas flaring, which it now says it will do by 2028. Just last month, Iraq needed to have its gas and electricity imports from Iraq waived by the U.S. and promised then to work with Siemens Energy and SLB (formerly Schlumberger) to this effect. It also said that it aims now to be self-sufficient for energy by 2030.

By Simon Watkins for Oilprice.com

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