Iraq has reached new agreements with Iran to increase natural gas import, the spokesman of Iraq’s Ministry of Electricity said.
“Iran has agreed to increase gas supply to Iraq from 8 million cubic meters per day to 30 mcm a day, as part of a new understanding reached between the two countries,” Ahmad Musa al-Ebadi added.
The National Iranian Gas Company produces close to 850 million cubic meters of gas per day, of which 90% are used domestically and the rest is exported.
According to the official, Iraq has provided guarantees to Iran that it will pay its arrears on previous energy imports in installments over the next three years, the Oil Ministry’s news agency Shana reported.
“Iraq relies heavily on gas imports from Iran to feed its power plants,” he said, adding that the Iraqi Ministry of Electricity is trying to import Iranian gas before a severe wave of heat in the current year.
Gas and electricity imports from Iran often meet up to a third of Iraq’s power demands. Iran supplies gas through two pipelines to power plants in Basra, Samawa, Nasiriyah and Diyala.
Iran slashed the supply of gas to Iraq to below 10 mcm per day in late 2020 after the National Iranian Gas Company said Baghdad had more than $5 billion of energy arrears.
That comes as gas exports to Iraq had reached records of more than 50 mcm per day in recent years.
Payment Problems
The payment of Iraq's energy debts poses a serious challenge for Iran's continued energy exports to Iraq in recent years.
A complex scheme designed to evade US sanctions has also slowed down transfers to pay for imports.
Through the scheme, Iraq is unable to pay Iran directly for the imports, but can pay for goods, medicines and other expenses related to Tehran’s diplomatic mission and Iranian companies working in Iraq. But Iran has complained the money is trickling in too slowly.
Ebadi said the new gas supply volume agreed with Iran in discussions held in Tehran last month would not be enough to meet the growing demand for natural gas in Iraqi power plants over the summer.
Energy consumption in Iraq is also very high, as it has increased by more than 600% since 2003.
However, he said the Iraqi electricity sector faced serious challenges last year when Iran cut gas supplies to levels as low as 5 mcm per day.
Sanction Waivers
Despite its immense oil and gas reserves, Iraq remains dependent on imports to meet its energy needs, and neighboring Iran currently supplies a third of its gas and electricity under a tightly controlled waiver from US sanctions.
Baghdad has secured several rounds of waivers from US sanctions on Tehran to be able to continue to import natural gas from Iran.
The last time was at the end of March when the US granted Iraq another 120-day sanctions waiver enabling continued cross-border imports of energy from Iran without triggering penalties, as efforts intensify to revive the 2015 nuclear deal that would see some sanctions on Tehran lifted in exchange for limits on its nuclear program.
The Iraqi electricity grid has remained weak after years of war that destroyed vital infrastructure and led to widespread power shortages in Iraq, especially during the hot summer months. Power outages have repeatedly provoked widespread protests from Iraqis.
Currently, close to 1,200 megawatts of electricity are sold to Iraq per day.
Iraq has been looking to neighboring countries to fill an electricity shortage and diversify its sources of supply in recent months.
Baghdad has been discussing potential electricity linkups with Saudi Arabia, Turkey, Jordan and Kuwait. But failure to agree on the price that Iraq would pay for the imported power has hindered progress after long-running negotiations.
It was also announced last month that Iraq planned to sign a deal to import liquefied natural gas from Qatar in an effort to secure sufficient fuel for generating power and diversifying its sources of supply.
