Iran-Iraq Energy Trade: Threats to a Win-Win Situation

For more than 15 years, the domestic supply of power has not met the peak load, and daily outages up to 16 hours in summer are a normal issue. The option of importing from neighbors has been on the government’s agenda in recent years, and in the last 6years, about 25% of the total electricity supply has been provided through directimports of electricity or gas for power plants.
Most predictions of Iraq’s energy balance for 2030 still allocate a share of between10% and 30% to imports, so the main rivalry for Iraq’s neighbors will be to become themajor supplier.

Associated gas accounts for over 70% of Iraq’s total gas reserves. Despite the fact that80 mm3 of gas can be produced per day, half of it is flared. Investing in reducing flaringhas historically taken a back seat to investing in boosting oil output, which is moreprofitable and appealing to the government.
During the last three years, Iran has delivered an average of 20 million cubic metersper day, equivalent to 30% of Iraq’s production. A comparison of the amount of gassupplied from Iran with the volume of gas flaring in Iraq reveals that if currentinvestments continue, this country may no longer require the gas imported from Iran.

Despite generating revenue for Iran’s electricity and gas exports in recent years,exports to Iraq “declined sharply” at the peak of domestic consumption due toproduction and consumption imbalances, or while approximately a third of Iraq’selectricity is dependent on imports from Iran, gas or electricity is cut off.
The sharp fluctuations in electricity and gas imports from Iran have been one of themain motivations of the Iraqi government to diversify its imports in recent years.

Connecting to the GCC member states’ electricity grid is a significant step toward diversifying Iraq’s energy imports. The Iraqi government decided in September 2019 to link to the network through Kuwait, and has recently completed technical operations with a capacity of 500 MW, which is equal to half of the current electricity imports from Iran.
Moreover, due to the connection of the Egyptian and Jordanian power systems, another import route has been opened through this power grid, which will eventually generate an exchange capacity of 500 to 700 MW for Iraq if both nations agree to invest $ 2.2 billion. These two pathways are Iraq’s primary choices for achieving its goal of diversifying its sources of import.

In terms of energy security, importing gas to power plants is a higher priority thanimporting electricity directly to Iraq, and given that almost none of Iraq’s neighbors hasthe capacity to export gas, Iran will remain Iraq’s main energy supply option in themedium term.
From an economic point of view, If Iraq were to replace 10 billion cubic meters ofimported gas from Iran with its own oil to generate electricity, it would lose $ 1 billion ayear. For the Iranian side, the price of gas exports to Iraq is not comparable to the priceof petrochemical feed (as the most expensive gas tariff).
There are three medium-term threats to this “win-win game”:
Increasing Iran’s gas and electricity imbalances and frequent export cuts
Increasing investment in reducing Iraq’s gas flaring
Expansion of Iraq’s electricity trade capacity with neighbors