How Iraq’s energy sovereignty can be measured and achieved? How do the geography and sanctions matter? What is the U.S.’ impact in this area? And who determines Iraq’s energy choices?
This creates a contradiction at the heart of Washington’s approach. The United States supports Iraqi energy independence while restricting some of the transactions Baghdad considers necessary to achieve it. When existing supplies become harder to secure before alternatives are operational, the immediate burden falls on Iraq’s consumers and economy.
Who Determines Iraq’s Energy Choices?
The Trump administration’s February 2025 sanctions memorandum called for reviewing or rescinding waivers providing Iran with economic relief, explicitly including those related to Iraqi energy imports. This established the political context. For Baghdad, however, the practical issue was whether replacement supplies could meet its electricity requirements.
In March 2025, Washington declined to renew the waiver permitting payments for direct electricity imports from Iran. This decision must be distinguished from restrictions on gas: an adviser to Iraq’s prime minister stated that the gas waiver remained in effect at that time. Electricity imported across the border and electricity generated inside Iraq using imported gas are separate supply channels.
The proposed Turkmen gas arrangement illustrates the constraints on Iraq’s options. In September 2025, US objections stalled a plan to supply Iraq with approximately five billion cubic metres of Turkmen gas annually through a swap involving Iran. Although Baghdad proposed third-party monitoring, the gas benefit Iran would receive under the swap arrangement remained an obstacle to US approval.
Iraq had sought a different supplier, yet changing the source did not remove the sanctions’ problem. Geography mattered: the proposed arrangement still involved its eastern neighbour. Baghdad’s assessment of an available supply route consequently remained subordinate to an external sanctions decision.
The contradiction is specific. Diversification requires additional commercially and technically viable options. Blocking an option without an operational replacement narrows that choice, even when the stated objective is greater independence.
Payment Restrictions as Energy Leverage
An energy contract is useful only if the buyer can pay and the supplier can receive usable proceeds. Iraq’s financial resources therefore do not automatically translate into freedom to procure energy.
The July 2023 banking waiver referred to dinar or euro payments held in restricted accounts belonging to Iranian companies at the Trade Bank of Iraq. These balances were subject to conditions governing their transfer and use. Media reported that month that a 120-day waiver also permitted payments into restricted accounts in third-country banks.
Periodic authorisation introduced uncertainty into transactions supporting an essential public service. A supply relationship could be commercially necessary for Iraq while its settlement remained dependent on decisions made in Washington.
These arrangements should be distinguished from the custody of Iraqi oil revenues at the Federal Reserve Bank of New York and the scrutiny applied to dollar transfers. A report on the 2023 dollar restrictions described how stricter identification requirements for transfer recipients constrained dollar access and put pressure on Iraq’s currency market. The stated purpose was preventing illicit transfers; the consequences also reached the domestic economy.
These are separate mechanisms, but they expose a common vulnerability: Baghdad’s purchasing power exceeds its freedom to settle certain transactions. Financial access becomes part of the energy supply chain – and a source of external political leverage.
Alternatives Must Be Measured in Delivered Power
Regional electricity connections can strengthen Iraq’s security of supply. Their contribution, however, must be assessed against actual capacity and availability.
The GCC Interconnection Authority describes its connection project with southern Iraq as designed to supply approximately 500 megawatts. For comparison, in December 2025 Iraq’s electricity ministry attributed a loss of 4,000–4,500 megawatts to an interruption in Iranian gas supplies. The Gulf connection’s planned capacity equals roughly 11–12.5 per cent of that particular loss. Actual compensation would also depend on operational readiness and electricity available for export.
This comparison demonstrates a difference in scale. It does not diminish the connection’s value, but it prevents a limited contribution from being presented as a complete replacement.
Floating storage and regasification units (FSRUs) can facilitate LNG imports, but reliable delivery also requires suitable marine facilities, connections to the domestic gas network and dependable supply arrangements. Deployment timelines depend on the readiness of this supporting infrastructure. Solar generation and associated petroleum gas recovery require their own supporting infrastructure.
Political deadlines do not shorten construction, testing and commissioning. Restricting access before these stages are complete leaves a gap that households and businesses must absorb.
Diversification in a Multipolar Market
Iraq has reasons to expand its investment partnerships. Media reported in August 2024 that Chinese companies had secured most of the fields offered in previous licensing rounds, while Baghdad was also seeking American investment. This combination reflects an effort to widen its options rather than commit exclusively to one geopolitical camp.
Continued financial constraints could increase the appeal of additional partners and payment arrangements. That is a possible strategic consequence, not evidence of an inevitable Iraqi break with Washington. Nevertheless, cooperation becomes less attractive when it imposes restrictions on relationships Baghdad considers economically necessary.
Iraq’s government remains responsible for grid weaknesses, delayed projects and inadequate development of domestic resources. The International Energy Agency’s roadmap stresses coordinated improvements in generation, gas supply and electricity networks. These domestic failures demand scrutiny, but they do not erase the contradiction in US policy: support for Iraqi sovereignty coexists with restrictions on its suppliers, routes and payments.
When those restrictions contribute to supply disruption, factories, households and public finances bear part of the cost. Washington’s policy must therefore be assessed by its effects on Iraq’s practical freedom to secure energy. Greater domestic capacity and diversified partnerships can expand that freedom. Dependence on foreign authorizations restricts it.
Dr. Kamran Yeganegi, Assistant Professor, Department of Industrial Engineering, Islamic Azad University; Senior Researcher at the Center for Strategic Studies of the Middle East (CSME)
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