The U.S.’s Hopes in Iraq Have Ended With the Oil-For-Gas Deal With Iran

Authored By Simon Watkins

Ever since the U.S. officially ended its ‘combat mission’ in Iraq on 31 December 2021, it has been looking for a way back into the huge but still relatively untapped oil and gas regions of the country, as analysed in depth in my new book on the new global oil market order. Iraq knows this perfectly well and has sought since then to exploit this need for money from the U.S. whilst having no intention of allowing it to return in any meaningful way. Many analysts trace this reluctance back to the U.S.’s invasion of Iraq in 2003 or to its continued military presence there until 2011, but although neither of these factors helped the U.S.’s ambitions in Iraq, neither of them put the final nail in their coffin either. This came with its unilateral withdrawal from the Joint Comprehensive Plan of Action (JCPOA) – or colloquially, ‘the nuclear deal’ – with Iran in May 2018. Iran has wielded enormous power over Iraq for a very long time indeed through its various political, economic, and military proxies and the death knell of the deal with Iraq meant the same for any ambitions the U.S. had in Iraq. The game plays from Iraq and the U.S. around this starting position were seen again last week but, as in the end of Macbeth’s fleeting moment of glory, these threats and counter-threats are ‘full of sound and fury, signifying nothing’: the game is already over, and the U.S. lost.

The last week or so has seen a series of statements from both the U.S. and Iraq surrounding Baghdad’s staggeringly omni-toxic idea that Iraq will pay with its own oil supplies for the gas and electricity that it has long been importing from Iran.

This is less of a slap in the face for Washington than a baseball bat in the crotch, as the U.S. has for years been giving Iraq tens of billions of dollars to help with its finances on the specific condition that the country reduces its imports of gas and electricity from Iran eventually to zero. For the U.S., the ending of Iraq’s reliance on Iran for around 40 percent of its power grid needs (through gas and electricity imports) would have provided an excellent starting point for American companies to move back into Iraq to begin a new commercially-based chapter in the two countries’ history. To encourage Iraq towards this end, the U.S. has granted waivers to it to continue to import gas and electricity from Iran to manage this transition away from dependence on its neighbour. Accompanying these waivers have been massive injections of U.S. funding into Iraq, usually following a visit to Washington in August or September each year by whoever was Iraq prime minister at the time to ask for money to bail out the Iraq budget. The principal reason why the Iraq budget needs bailing out every year is because of the industrial-scale corruption that lies at the heart of its oil sector administration, as also analysed in depth in my new book on the new global oil market order. This offensive manoeuvre from the Iraqi playbook is such a regular annual feature in Washington that for a long time, a very senior U.S. legal source closely connected to such discussions exclusively told some years ago, it has been known as ‘the Baghdad Ballet’. 

Up until now, the most shocking betrayal of the U.S.’s optimistic trust in Iraq in this context came from the ultra-smooth Mustafa al-Kadhimi. He had danced the usual dance with the U.S. so well that in May 2020 Washington gave him even more money than before and the longest waiver ever given – 120 days – to keep importing gas and electricity from Iran, on the standard condition that Iraq stopped doing it soon. However, once the money had been banked and al-Kadhimi was safely back on home territory, Iraq signed a two-year contract – the longest period ever – with Iran to keep importing gas and electricity from it. 

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