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Simon Watkins

Simon Watkins

Simon Watkins is a former senior FX trader and salesman, financial journalist, and best-selling author. He was Head of Forex Institutional Sales and Trading for…

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Iraq Plays U.S. Off Against Iran With New Crucial Gas Deal


Since the fall of Saddam Hussein in 2003, Iraq has played the main powers in the Middle East off against each other - the U.S. axis focused on Saudi Arabia (and Israel) on one side and the Sino-Russia axis focused on Iran on the other. Overall, these efforts have been broadly successful, allowing Iraq to gain hundreds of billions of dollars from the U.S. whilst also playing a key part in the extension of Iran’s power across the region and beyond. With the onset of the U.S.’s new strategy to tie-in Arab states through a series of ‘relationship normalisation’ deals with Israel, though, the difficulties for Iraq in maintaining this perilous balancing act have increased markedly. This is particularly evident in the current rollout of a regional power grid across the Middle East and it may be that recent announcements in this regard finally tip Iraq off its diplomatic high wire act.

Last week saw the continuation of high-level talks between Iraq and Syria over how best to ensure an ongoing movement of gas from Egypt to Syria and then onto Iraq. These meetings occurred after Iraq’s Prime Minister, Mustafa al-Kadhimi, recently brokered secret talks between Saudi Arabia and Iran, which had raised the prospect that Iran might be on the verge of temporarily reining-in its expansionist policies in the Middle East in order to enter into a renegotiation of the Joint Comprehensive Plan of Action (JCPOA, ‘nuclear deal’). Currently, according to sources who work closely with the current Iranian government spoken to by OilPrice.com last week, the U.S. is prepared to only the tentative removal of some sanctions in the oil, gas, petrochemicals and automotive sectors, plus some relating to the banking sector, which will be reviewed after six months. However, such a deal between Iraq, Syria, and Egypt would raise many questions in Washington about Iraq’s true intentions, particularly as it ties in to a broader push by Iran to tie-in Jordan and Lebanon as well into a regional electricity power network with Iran firmly at its centre.

In and of itself the Iraq-Syria-Egypt gas plan is an alarming prospect for the U.S. The plan that was discussed between Iraq’s Oil Minister, Ihsan Abdul-Jabbar Ismail, and his Syria counterpart, Bassem Touma, was for a major gas pipeline to transport gas from Egypt to Syria whereupon it would be moved overland into Iraq. This would decisively tie Egypt in to Iran, given the extensive links between Iraq and Iran both in terms of physical gas and oil infrastructure and in terms of the political and military osmosis between the two sister states. Crucially from the U.S. perspective it would mark a serious step towards Iran firmly establishing a ‘land bridge’ from itself through Iraq to Syria and into the Mediterranean to augment the ‘air bridge’ that has operated effectively directly between Tehran and Damascus on and off for around a decade.

This would render ineffective much of the U.S.’s efforts to control this expansion via its land-based operations in and around Tanf, with the At-Tanf base for a long time controlling a tri-border (Syria, Jordan, and Iraq) exclusion zone. It would also tie Egypt in directly to Russia, given Moscow’s presence across all strategic areas of Syria since the onset of the civil war in 2011 designed to depose President Bashar al-Assad. Although the U.S. still has a significant presence in Syria’s oil sector, despite the pullback from the country orchestrated by former U.S. President Donald Trump, it is Russia that holds the key military assets. These most notably include: the huge Mediterranean naval facility at Tartus (Moscow signed a rolling 49 year deal to use the base free-of-charge, with complete sovereign jurisdiction over it); the massive Russian Khmeimim Air Base (another rolling 49 year lease on it signed by Moscow); and the Latakia intelligence-gathering listening station. The U.S. under new President, Joe Biden, has been looking to re-establish a more active response to the Russian presence along the Iran-Iraq (Anbar)-Syria spine, with recent news that a Saudi oil firm with significant U.S. intelligence and logistical support – Delta Oil Company – is in talks to develop Iraq’s Akkas gas field, alongside U.S. oil services giant, Schlumberger. Related: Oil Prices Hit 2-Year High

So vital does Syria remain to Russia’s military and political presence that the Kremlin firmly negotiated for its little-known Stroytransgaz to be awarded a gas exploration and development contract for ‘Block 17’ in Iraq’s lawless Anbar province. Anbar is sited along spine of Iraq that runs from east to west that also features the historical ultra-nationalist and ultra-anti-West cities of Falluja, Ramadi, Hit and Haditha, and then on into Syria. It was Stroytransgaz that won US$$2.7 billion of contracts in 2006/7 to build two major pipelines and a gas processing plant in Syria that would be connected to Iraq and then Iran. One of these was to have become the official Iran-Iraq-Syria pipeline that in addition to supposedly moving gas (and later oil) from Syria into Iraqi would also have allowed for the reverse movement of gas (and later oil) from Iran’s South Pars (and nearby oil fields) via Iraq and then into Syria. This Iran-Iraq-Syria (and Syria-Iraq-Iran) pipeline was a cornerstone to the wider build-out of several planned refineries that had received the go-ahead prior to the breakout of the civil war in Syria. This included the 100,000 barrels per day oil facility at Abu Khashab backed by the China National Petroleum Corporation, and the South Central Gas Area - built by Stroytransgaz – that had started up by the end of 2009 and had boosted Syria’s natural gas production by about 40 per cent by the onset of civil war in 2011.

The Egypt-Syria-Iraq gas pipeline would augment – rather than substitute for – a parallel plan to transport gas from Egypt to Iraq via Jordan. The first phase of the proposed Basra-Aqaba route would include the installation of a 700-km pipeline with a capacity of 2.25 million barrels within the Iraqi territories and the second phase would involve the installation of a 900-km pipeline in Jordan between Haditha and Aqaba, with a capacity of one million barrels. For Iran, this will allow another alternate Iraq/Iran oil export line to the historically vulnerable Strait of Hormuz route, to add to the current plans for the Goreh-Jask pipeline and plans to roll out a pipeline to Syria as well. It will also provide another ‘cover’ route for Iranian oil disguised as Iraqi oil, which can then be shipped easily both West and East. There are a number of options for this Iraq-Aqaba-Egypt pipeline route, even the favoured ones that avoid any Israeli land or sea threats, including a very short route following the same ground as one of the Arab Gas Pipeline flows: from Aqaba to Taba, and then if required up north to Arish and then west to Port Said. This all neatly fits into Iran’s plans to tie the entire region in to its own power network as inadvertently highlighted recently by Iraq’s Electricity Minister, Majid Mahdi Hantoush. He announced that not only is Iraq currently working on connecting its grid with Jordan’s electricity networks through a 300-kilometre-line – a project that will be finished within two years -  but also plans have been finalised for the completion of Iraq’s electricity connection with Egypt within the next three years. This, in turn, he added, would be part of the overall project to establish a joint Arab electricity market.

By Simon Watkins for Oilprice.com

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