Dispute Erupts Over Iran's Gas Exports to Iraq

Copyright © 2021 Energy Intelligence Group

Iran has slashed its natural gas exports to neighboring Iraq as it faces problems collecting payments for gas that Iraq depends on for power generation. Iraq's electricity ministry said on Wednesday that Iranian gas supplies to power plants in central and southern Iraq had fallen from 49 million cubic meters per day to just 8 MMcm/d, causing the loss of some 5.5 gigawatts of power capacity. "The ministry has taken urgent measures, including closely coordinating with the oil ministry to pump additional quantities of alternative fuel to compensate for what the system lost," it said. It added that Iran's energy ministry and its embassy in Baghdad have been asked to clarify the reasons for the reduction in gas supplies. Mixed Messages From Tehran Tehran, meanwhile, has been sending mixed messages about the situation. A senior official at National Iranian Gas Co. (NIGC) said a six-month agreement had been reached to reduce gas supplies to Iraq, according to a report on Thursday published by the Iranian oil ministry's Shana news website. The NIGC official was quoted as saying that this had nothing to do with Iraq's debts to Iran, but added that the need to settle those debts was "still on the agenda." However, Iran's semi-official ILNA news agency had previously cited NIGC as saying that Iraq's electricity ministry owed the company more than $5 billion, including $3 billion of funds held by the Trade Bank of Iraq that it was unable to access. ILNA also quoted Mehran Amirmoeini, deputy director of gas marketing at National Iranian Oil Co. (NIOC), as saying: "This is a bilateral contract and both parties must abide by its terms." "Iraq has no right to criticize [Iran's decision to cut exports] because its payments for the gas and electricity have not been made on a regular basis," Amirmoeini said. The decision to cut exports was "neither illogical nor illegal,” he added. Power Blackouts Iraq's acute electricity problems were laid bare in July when the national grid collapsed, resulting in nationwide blackouts. This was partly attributable to a temporary cut in Iran's gas and power exports, but also to scorching summer temperatures, attacks on fragile electricity infrastructure and defective transmission lines (WGI Jul.21'21). The power shortages, which risk triggering major social unrest, highlight the failure of successive Iraqi governments to harness the country's own prodigious gas resources. Meanwhile, Iraq continues to flare large volumes of associated gas from its oil fields -- 17.4 billion cubic meters last year, according to the World Bank (EC Jul.23'21). The current government is pushing to seal a major gas deal with TotalEnergies before elections scheduled for Oct. 10. That would involve capturing 600 million cubic feet per day of gas that is currently flared in southern Iraq (IOD Aug.30'21). Role of US Sanctions The power shortages also highlight the serious difficulties that Iraq is facing as a result of US sanctions against Iran. Even though Iran's gas exports are not technically sanctioned and Washington has periodically granted Baghdad waivers that allow Iraq to pay for imports of electricity, it has proved difficult in practice to make those payments. Iraqi officials have suggested that Iran's gas supply cuts were intended to put pressure on Baghdad to ignore the restrictions imposed by US sanctions. A former senior official at the electricity ministry told Energy Intelligence after the July power outages, that It would be "very helpful" if stalled talks between the US and Iran resumed and succeeded in reviving the 2015 nuclear deal and lifting US sanctions on Iran (WGI Jul.21'21). Simon Martelli, London

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