Simon Watkins

Simon Watkins is a former senior FX trader and salesman, financial journalist, and best-selling author. He was Head of Forex Institutional Sales and Trading for…

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• With U.S. waivers on Iranian energy imports revoked, Iraq is under pressure to rapidly develop its own non-associated gas fields.
• The West sees Iraq’s gas sector as a geopolitical battleground.
• Iraq faces complex geopolitical choices as Chinese and Russian influence grows.

After a series of internal meetings at Iraq’s Oil Ministry over the past two weeks, talks with several international energy companies have begun with the aim of finally kickstarting developments on the country’s key non-associated gas fields, a senior source who works closely with the Ministry exclusively told OilPrice.com last week. “It’s finally sunk in that the jig’s up with the U.S. and Iran [Washington’s previous granting of waivers to Iraq to keep importing gas and electricity from Tehran], which means everyone’s now scrambling around trying to work out how they’re going increase gas output to levels that prevent rolling blackouts all year round,” the source said. “There are good options available to it [the Ministry], but they all have major political consequences attached, so the decisions in the coming weeks won’t be straightforward,” he added.

To give credit where it is due, Iraq’s Oil Ministry had a great run with Washington, as analysed in full in my latest book on the new global oil market order. Year in, year out, from 2018 when the U.S. unilaterally withdrew from the Joint Comprehensive Plan of Action (JCPOA, ‘nuclear deal’) with Iran, Baghdad has played the same game to secure waivers to keep importing Iranian gas and electricity, despite the swingeing sanctions imposed on others for so doing. The game was a simple but effective one, beginning with whoever was prime minister of Iraq at the time going to Washington every August/September – which was a nice break for him anyway from the heat of Baghdad. He would then promise that Iraq would gradually reduce gas and electricity imports from Iran in exchange for an extension of the waivers from the U.S. to keep doing so for the short term – and one or two billion dollars to bail out Iraq’s budget, as they were there. Once the new waiver had been signed and the money was in a bank far away from the reach of Washington, Iraq would promptly sign a new agreement with Iran to keep importing its gas and electricity anyway. Indeed, just before the newly re-empowered Donald Trump began his second presidency, Iraq signed the longest ever deal – five years, no less – with Iran to keep doing precisely what it had promised the U.S. not to do barely a few days before. Unfortunately for the Oil Ministry, reality has bitten following the U.S.’s 8 March decision to end all waivers on Iraq continuing to import energy from Iran, which in recent years has provided around 40% of all its power needs. The State Department in Washington underlined it had done so to “ensure we do not allow Iran any degree of economic or financial relief,” and added that Trump’s maximum pressure campaign against Iran aims “to end its nuclear threat, curtail its ballistic missile program and stop it from supporting terrorist groups”.

So, what to do now for the denizens of the Oil Complex Building on Port Saeed Street, Baghdad? Even with the massive imports of Iranian energy each year, blackouts are commonplace across Iraq, and these have led to bloody protests in the past -- so doing nothing is not an option. There is no point in systematically looting a nation’s oil and gas wealth over the years only to end up with your head on a stick, after all. Doing something genuinely altruistic for the country and its people is also an option, with the added frisson that it has not been tried before. In this context, there are several options available in the gas sector, including building on two recent megadeals with Western powerhouse firms – the UK’s BP and France’s TotalEnergies. Both have enormous experience in the gas sector, as does the UK’s Shell, which recently announced its aim of becoming the world’s leading gas and liquefied natural gas (LNG) business and already has substantial business in Iraq. Through its Basra Gas Company (BGC) joint venture, Shell is already capturing and utilising flared gas from fields like Rumaila, Zubair, and West Qurna Phases 1 and 2 with the aim of helping the country achieve energy independence.

Although much of the West’s efforts to develop Iraq’s gas independence are centred on reducing the flaring of associated gas that comes as a by-product of oil drilling, there is no doubt that these firms – and other European and U.S. companies -- could provide game-changing help if asked from Iraq’s non-associated gas fields. Official estimates are that Iraq has proven reserves of conventional natural gas amounting to 3.5 trillion cubic metres (Tcm) or about 1.5% of the world total, placing it 12th among global reserve-holders. Around three-quarters of Iraq’s proven reserves are estimated to consist of associated gas. However, Iraq did not revise its figure for proven gas reserves in 2010 at the time of the upwards revision of proven oil reserves. Well-founded figures for non-associated gas were not provided at the time either – or since – from the Iraqi oil and gas authorities. However, the International Energy Agency (IEA) estimates that ultimately recoverable resources will be much larger than the official estimates of 3.5 Tcm. Its estimate is 8.0 Tcm, of which around 30% is thought to be non-associated gas.

Two of Iraq’s key non-associated gas fields are Akkas and Mansuriyah and Iraq’s Oil Ministry agreed last week that the development of these should be speeded up. The former has around 5.6 trillion cubic feet (Tcf) of proven reserves and is expected to produce around 400 million standard cubic feet per day (mmscf/d) of gas, while the latter holds about 4.5 Tcf of gas and is forecast to produce around 300 mmscf/d of gas at its peak. Currently, Akkas is being developed by the little-known Ukrainian firm Ukrezemresurs, and Mansuriyah by a consortium led by China’s Jereh Group and Petro Iraq. However, assigning either of these fields for long-term development carries with its enormous geopolitical implications for Iraq. The Mansuriyah field -- located very close to the eastern border with Iran -- is one of the three big sites that form a skewed triangle across Iraq, together with the Siba non-associated gas field site to the south (extremely close to the key Iraqi Basra export hub), and the Akkas field all the way west (extremely close to the border with Syria). Along the spine of this entire area running from east to west are the historically ultra-nationalist and ultra-anti-West cities of Falluja, Ramadi, Hit and Haditha. At that point, Iraq turns into Syria, and it is just a short hop to the key strategic ports of Banias and Tartus, and then to Latakia. Before the removal of Syria’s President Bashar al-Assad, all three cities were globally strategic sites for Russia and China, as also analysed in full in my new book on the new global oil market order, and Moscow and Beijing hope they will be again. In the zero-sum game of global geopolitics, they are equally important to the West, particularly as oil and gas companies are legally entitled to secure their operations around the world through whatever means they feel necessary, including stationing as many security personnel around their developments as they think appropriate.

Broadly speaking in this context, Iraq – both the south of the country centred around Baghdad, and the north based around Erbil – is at a critical juncture for the West and the East. Since the U.S. withdrawal from the JCPOA in 2018, China and Russia have expedited their efforts to end all remaining Western influence across Iraq so that it can be finally positioned along with Iran as a Middle Eastern stronghold, full of cheap oil and gas to boot. As a senior political source in Moscow exclusively told OilPrice.com many months ago: “Iraq will be one unified country and by keeping the West out of energy deals there, the end of Western hegemony in the Middle East will become the decisive chapter in the West’s final demise.” On the other hand, a senior source who works closely with the European Union’s (E.U.) energy security complex told OilPrice.com recently, the current policy of the West is to terminate all links Iraq has with Chinese, Russian and Iranian companies connected to the Islamic Revolutionary Guards Corps over the long term. “It may be that Iraq chooses to go with a mix of Western and Chinese firms for these three key gas sites [Akkas, Mansuriyah and Siba] for the time being, but over time we think it will find that necessity drives it to Western firms,” the E.U. source concluded.

By Simon Watkins for Oilprice.com

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