Iraq, OPEC’s second-largest oil producer and one of Iran’s largest trade partners might come to enjoy even longer sanction waivers from Washington than the eight countries that scored a 180-day sanction relief last month. The reason: curbing Iran’s influence over its neighbor is a long-term goal, not something that could be done with sanctions inside a year, writes Natasha Turak for CNBC.
Washington gave Iraq a 45-day sanction waiver, but analysts seem to be unanimous this will be extended because of Iraq’s overwhelming dependence on Iranian natural gas for its power stations. Iran already played the gas card once this year, when Baghdad was late with payments. Tehran turned off the flow, which led to power outages, which, in turn, ignited the protests that shook southern Iraq this summer.
As much as the United States wants an Iraq less dependent on Iran, it does not need disturbances in Iraq, which has yet to get back to its feet after the U.S. invasion and the war with Islamic State. Washington seems to be aware of this and is treading carefully because it is all too easy to push the country further into the arms of Tehran. A more aggressive approach to a country with such close and long-standing ties to its neighbor will likely have the opposite of the desirable effect.
Yet playing the game of distancing Iraq from Iran will take years. Many in Iraq, Turak notes, are unhappy with Iran’s influence in the country and would like to see it reduced. This is a factor Washington has going for it, but it’s likely one of very few alongside Baghdad’s simple need for material and political support from the United States as Iraq struggles along the way to recovery. Related: Oil Prices Tank Despite Large Crude Draw
Meanwhile, Iraq may be on the way to alienating some of its closest allies besides Iran, namely Saudi Arabia and its Gulf sidekicks. OPEC’s number-two does not want to cut its oil production. What’s more, it might not even be able to cut, CNBC’s Brian Sullivan noted in an overview of the cartel situation earlier this week. There is even speculation Iraq might follow Qatar in quitting the cartel, which would obliterate any positive effect of any cuts on prices. And it would make President Trump happy with Baghdad as well. Ironically enough, it would also likely further strengthen the relationship between Baghdad and Tehran as the latter is also opposed to production cuts.
The Iraq game is a long game and victory for the U.S. is uncertain. Despite the eight-year Iran-Iraq war from the 1980s, no amount of effort would achieve a complete estrangement between the neighbors. But complete estrangement is hardly the goal of Washington: Iraq’s role would more likely be that of a buffer between Iran and the rest of the world. To convince it to play this role, Washington would need to continue being careful in Iraq, careful and patient.
Iran, meanwhile, will hardly watch and do nothing. On the contrary: last month President Hassan Rouhani announced bilateral trade with Iraq could be boosted to US$20 billion annually from the current US$12 billion despite the U.S. sanctions.
By Irina Slav for Oilprice.com
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