Iraq is grappling with a natural gas shortage while simultaneously exploring new crude oil export markets.
In recent weeks, Iraq has made headlines not only due to pressure from OPEC but also because of its struggle to secure natural gas imports. Iraqi Oil Minister Hayyan Abdul Ghani stated on Iraqi television that negotiations are ongoing with several companies to secure two floating storage regasification units (FSRUs) by early June. These are needed to address a natural gas supply deficit caused by the expiration of a U.S. waiver that previously allowed Iraq to import Iranian electricity. The Trump administration is now pressuring Tehran to reach a nuclear deal, with all options on the table. The two FSRUs are set to be installed near the Khor Al-Zubair port in Basra. Simultaneously, Baghdad has issued a tender for a fixed regasification platform at the Grand Faw port in the south.
In parallel, news has emerged that Baghdad is targeting African markets for its crude oil exports. Currently, 70% of Iraq’s 3.2–3.5 million bpd oil exports go to Asia. Oil Minister Abdul Ghani emphasized that Africa is becoming a significant new export destination. Iraq is also expanding its production capacity, supported by 44 new contracts issued during the latest licensing round across 14 provinces.
On Sunday, Iraq’s Deputy Minister of Oil, Basim Khudair, announced the country’s goal to increase crude oil production to over 6 million bpd by 2028 or 2029. This expansion includes a new agreement with British energy major BP to develop four key oil fields in Kirkuk. Currently, production stands at approximately 4.4 million bpd.
Related: Elliott Wants More Buybacks From Germany’s RWE After Buying 5% Stake
Alongside its push into Africa, Iraq continues negotiations with Turkey and the Kurdish Regional Government (KRG) over the resumption of crude oil exports via Turkey’s Ceyhan port. The government aims to export around 350,000 bpd through the Iraq-Turkey pipeline. However, internal issues remain unresolved. Despite a formal agreement by Iraq’s government and parliament to resume KRG-produced exports, Iraq has yet to recognize international contracts signed between the KRG and foreign operators.
Meanwhile, Baghdad is reportedly in advanced talks to import Algerian LNG to feed its new FSRUs. Arabic energy platform TAQA reported that Baghdad is close to finalizing a deal with Algeria for additional LNG supplies. The deal, expected within the next two months, could be a crucial lifeline as Iraq faces energy shortfalls ahead of the summer and winter seasons. The proposed agreement could supply Iraq with 1 million tons of LNG annually under a medium-term contract, offering the country a more stable energy outlook.
Despite progress in diversifying its energy sources, Iraq’s LNG imports hinge on completing the regasification infrastructure at Khor Al-Zubair. Baghdad’s installation of an FSRU connected to the national grid via a 40-kilometer pipeline marks a significant milestone. The project, expected to be completed by August, will help alleviate pressure on Iraq’s power sector.
The situation has been further complicated by the U.S. decision to revoke a sanctions waiver that previously allowed Iraq to import Iranian gas. Although Iraqi sources claim the waiver is still technically in place, reports indicate that the exemption for electricity imports has been rescinded. This presents a major challenge, as roughly 43% of Iraq’s electricity production relies on Iranian natural gas.
To reduce its dependency on imports, Iraq is accelerating its 2030 net-zero gas flaring initiative and inviting Western and Asian firms to invest in domestic gas projects. However, despite multibillion-dollar deals with BP and several Chinese companies, these projects are unlikely to solve Iraq’s immediate energy crisis.
In addition to talks with Algeria, Iraq is exploring LNG agreements with Qatar and plans to double electricity imports from Turkey. A gas supply deal signed with Turkmenistan in October 2024 will also provide Iraq with 20 million cubic meters of gas daily.
As Baghdad navigates these overlapping energy challenges, securing diversified gas sources is not just important but critical to maintaining economic stability and meeting domestic power demand.
In a surprising twist, Oil Minister Abdul Ghani revealed that Iran has been using forged Iraqi documents to smuggle oil. When asked about growing U.S. pressure on Iran, he told the press that U.S. naval forces had detained oil tankers in the Gulf carrying Iraqi shipping manifests. On state television, he stated: “It turned out that these tankers were Iranian and were using forged Iraqi documents. We explained this to the relevant authorities with complete transparency, and they confirmed it.” Iran has long used Iraq as a conduit to support its economy under sanctions. In December 2024, Reuters reported on a sophisticated fuel oil smuggling network believed to generate at least $1 billion annually for Iran, with much of the operation linked to Iraq. Abdul Ghani reaffirmed that Iraq’s state oil marketer SOMO does not supply to trading companies, and he suggested that several traders were involved in the smuggling scheme.
By Cyril Widdershoven for Oilprice.com