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Kadhimi woos Washington

The new Iraqi premier is leveraging the US administration’s loathing for Iran to secure energy investments

Iraqi prime minister Mustafa Kadhimi's first official trip to the US in late August, just months into the job, was followed by the announcement of a slew of gas and power-focussed deals with American energy companies. The White House described them as being designed to enable "rapid progress towards energy independence from Iran".

Yet the details of the deals—or lack thereof—suggest Iran has little immediate cause to fear losing either the cash or political influence it gains from its arrangement. The five US agreements’ stated value of “up to $8bn” covers a broad range—and only one had a specific value attached.

The key accord, in terms of the core US aim of increasing Iraqi gas production, was between the Ministry of Oil (MOO) and US company Honeywell to install a gas plant at Ar Ratawi in the southern province of Basra.

Much will depend on whether Kadhimi is capable of ushering in the new era of improved governance he aspires to represent

However, the announcement referred somewhat euphemistically to a commitment “to advance the development” of the gas hub, skirting over the fact that Honeywell signed a contract in July last year to execute the project—which covers facilities built in two phases to process first 300mn ft3/d (8.49mn m3/d) and then 600mn ft3/d of associated gas from the Luhais, Majnoon, Saba, Tuba and West Qurna fields—in partnership with US compatriot Bechtel, which later withdrew.

Work has stalled since then and, in May, Iraq’s energy ministry claimed Saudi Arabia's Acwa Power—and possibly its giant compatriot Saudi Aramco—were considering joining the venture. Riyadh has expressed broader commitment to helping Iraqi gas developments, with a preliminary commitment made early in Kadhimi’s tenure for Aramco to help develop the western desert’s Akkas field, one of the largest in Iraq.

However, like oil companies worldwide, the Saudi giant is cutting capex in the face of unprecedented financial pressures, and is unlikely to want to proceed with such a major and novel upstream investment before assessing the new Iraqi leader’s success in reducing the influence of its regional archenemy.

The second gas-related deal was vaguer, calling for the MOO and oilfield services stalwart Baker Hughes to collaborate on further opportunities to generate power from flared gas—of which Iraq was the world’s second-largest emitter in 2019, at 17.8bn m3. The company signed a contract in 2018 to install facilities to process 200mn ft3/d of associated gas from the Al-Nasriyah and Gharraf fields in the southern Dhi Qar province.

Iraq’s Ministry of Electricity signed two agreements targeting power-generation infrastructure. US multinational GE will add new combined-cycle units at two power plants, strengthen the national grid, and work on its interconnection with Jordan at an estimated total cost of around $1.2bn. Florida-based Stellar Energy also committed to collaborating with the ministry to improve the efficiency of existing power plants.

Oil production

The White House highlighted the collective potential of the deals to reduce Iraq’s energy imports, but the most novel of the five offered help instead to Baghdad’s long quest to raise production and, by extension, exports of oil.

$8bn – Stated value of US-Iraq deals

Chevron, the only major absent from Iraq’s upstream, inked a pact with the MOO described in the US statement as “a framework for entering into exclusive negotiating on an exploration, development and production contract in the Dhi Qar Province”. This is generally understood to cover chiefly the 4.4bn-bl Al-Nasiriyah field.

Informal indications, including recent statements from oil minister Ihsan Ismail, are of a commitment to spend several hundred million dollars on exploration work in and around Al-Nasiriyah—any greater capex being unfeasible in the current market. Baghdad likewise lacks the funds to pay upfront to develop the asset in the short-term, although it will be crucial to the minister’s recently stated ambition to raise production across Dhi Qar more than fourfold, to 1mn bl/d, by 2025.

Baghdad’s record for hitting such targets gives grounds for considerable scepticism. Chevron, meanwhile, signed memorandums of understanding envisaging its belated entry to the south two years ago before withdrawing in apparent exasperation with the terms and negotiating style of its local interlocutors. Much will depend on whether Kadhimi is capable of ushering in the new era of improved governance he aspires to represent.

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