Iraq Begins to Adjust to Syria’s Post-Assad Reality

On Friday, Iraqi Prime Minister Mohammed Shia al-Sudani met with Syrian President Ahmad al-Sharaa in Qatar—their first encounter. The meeting placed regional security at its core. Talks focused on border control and counterterrorism and shared concerns over instability along the Iraqi-Syrian frontier. 

The collapse of Bashar al-Assad's regime in Syria in early December 2024 ushered in a new geopolitical reality for the Middle East. Syria’s neighbours, such as Iraq, have been prompted to reassess their approach to Damascus. While Baghdad had no deep affinity Assad, the Assad regime at least provided a degree of predictability while also maintaining close ties with Iraq's strategic partner, Iran.

In this new era, the rise of Syria's interim President, Ahmad al-Sharaa—a former al-Qaeda militant in Iraq—has sparked some alarm among Iraq’s security establishment. Iraq's stance on Syria is shaped by its own civil war experience, when cross-border militancy exacerbated sectarian tensions and fueled years of conflict.

Today, Iraqi officials fear that renewed instability in Syria could provide fertile ground for an Islamic State (IS) resurgence, jeopardising Iraq's already fragile security situation. Securing Iraq’s 600-kilometer border with Syria remains the top priority in the midst of ongoing challenges such as cross-border smuggling, extremist infiltration, and refugee flows. At the same time, Baghdad must assess if Syria’s new leadership can be reliable partners and whether deeper political and economic cooperation can be pursued.

In the immediate aftermath of Assad’s departure, Iraq’s leadership adopted an approach of measured pragmatism. Rather than rushing into full diplomatic engagement like several other Arab states, policymakers in Iraq opted for a security-first strategy. This entailed dispatching intelligence officials to Damascus and extending a cautious invitation to Syria’s new foreign minister for talks in Baghdad. Prime Minister al-Sudani reaffirmed Iraq’s commitment to Syria’s sovereignty while swiftly moving to reinforce border security.

The hesitation among Iraq’s leadership reflects both uncertainty over the stability of Syria’s new government as well as internal political debates over normalising diplomatic relations. Al-Sharaa’s past ties to jihadist networks in Iraq has prompted unease. His record is especially sensitive in Baghdad, given the Al Qaeda’s role in orchestrating sectarian atrocities during the 2006-2007 civil conflict.

Having endured a grueling counterinsurgency campaign against IS from 2014 to 2017, and still facing monthly attacks by IS sleeper cells, Iraq remains deeply wary of any potential spillover that could revive insurgent networks within its borders. The continued porousness of the Iraq-Syria border remains a primary vector for IS mobilisation, heightening Baghdad’s concerns.

In the lead-up to the meeting between Sudani and al-Sharaa, Iraq’s initial steps towards engagement with Syria focused on security coordination. In late December 2024, Baghdad repatriated 1,905 Assad-era soldiers who had fled across the border. Around the same time, Iraq’s National Intelligence Director, Hamid al-Shatri, was dispatched to Damascus for talks with Syria’s transitional government, focusing on counterterrorism and intelligence-sharing.

A central issue on the agenda was the al-Hol detention camp, which holds over 40,000 IS-associated detainees—many of them Iraqi nationals—amid deteriorating security conditions. The continued instability in northeastern Syria, where IS remnants remain active, coupled with the uncertain future of the US-backed Syrian Democratic Forces (SDF), pose an immediate risk that Baghdad cannot afford to ignore.

The 10 March 2025 agreement between Damascus and the SDF, which outlines a framework for the eventual integration of Kurdish forces into Syria’s national security apparatus, represents another critical variable in Iraq’s evolving defence calculus. Baghdad is closely monitoring how the deal unfolds, particularly its implications for Kurdish armed groups operating along the Iraq-Syria border. While security officials in Iraq see the agreement as a potential step toward stabilising the area, they remain wary that unresolved tensions between the SDF and Turkish-backed factions could trigger further conflict, with possible spillovers into Iraqi territory.

Damascus has responded with public commitments to closer coordination and has agreed to expand joint counterterrorism efforts. This message was reinforced during Syrian Foreign Minister Asaad al-Shaibani’s first official visit to Iraq in mid-March 2025. During the visit, Shaibani called for the restoration of formal border operations and described enhanced bilateral trade as a priority. 

He also underlined Syria’s readiness to cooperate with Iraq against remnants of IS, framing national safety as a “shared responsibility.” Baghdad, for its part, expressed respect for the Syrian people’s political choices while urging Damascus to ensure the safety of Syrians residing in Iraq. This was motivated by rising tensions following acts of violence targeting Syria’s Alawite minority. Syria’s new leadership has also signalled interest in rejoining regional forums and hinted at deeper future engagement. Nonetheless, it is likely to prioritise security coordination and economic lifelines as initial steps in its post-Assad foreign policy.

Discussions reportedly included the potential reopening of formal border crossings to bolster trade and economic ties, though no official confirmation has been issued. Prime Minister Sudani also extended an invitation to al-Sharaa to attend the upcoming Arab League Summit in Baghdad on 17 May 2025, which would mark Syria’s first participation since Assad’s fall. The encounter underscores both countries’ interest in renewing coordination while also highlighting Qatar’s expanding role as a facilitator of regional dialogue.

Though no formal security pact exists between the two states, the Iraq government has taken proactive steps to fortify its defences. Additional units from the Popular Mobilisation Forces (PMF) have been deployed to reinforce Iraqi Armed Forces positions along the border, aiming to prevent militant infiltration. Iraq has also stepped up its border control operations, targeting smuggling networks and intensifying surveillance of cross-border movements—measures deemed crucial for curbing terrorist activities and illegal trade.

A further issue shaping Iraq’s relationship with Syria is the illicit narcotics trade, particularly the trafficking of Captagon pills, which has long been a highly lucrative industry linked to Syria. Iraqi authorities have escalated anti-smuggling efforts, resulting in several major drug seizures in recent months. These efforts reflect not only Baghdad’s commitment to combating organised crime but also its broader apprehension over how Syria’s new government will handle such networks.

While Iraq’s security forces have intensified enforcement measures, it remains unclear whether Syria’s transitional leadership will actively cooperate in dismantling the entrenched drug trade that flourished under the previous regime. For decision-makers in Iraq, tackling the Captagon crisis is not merely a matter of law enforcement; it serves as a litmus test for the credibility of Syria’s new leadership in managing governance and perimeter control.

Beyond defence issues, Iraq is also entangled in Syria’s unfolding humanitarian crisis. With over 270,000 Syrian refugees residing in Iraq, the government has initiated discussions with Damascus on the possibility of voluntary repatriation. Yet, given Syria’s fragile political transition, the feasibility of such efforts remains highly uncertain. 

Iraq has also expanded its humanitarian aid to Deir ez-Zor and other northeastern Syrian regions, recognising that stabilising these areas is not only a moral imperative but also a strategic necessity to prevent them from becoming breeding grounds for renewed insurgency. Still, the extent of Baghdad's direct involvement in Syria's reconstruction remains ambiguous as the Iraqi government carefully weighs the financial and political risks of committing to more substantial interaction with its fragile neighbour.

While security and political apprehension dominate the immediate landscape, Iraq’s long-term interests in Syria extend to broader economic and infrastructural considerations. The reopening of trade corridors, enhancement of cross-border infrastructure, and development of joint energy projects remain possibilities, but these initiatives all hinge on the stabilisation of Syria’s internal situation. The Iraqi government is closely monitoring whether Damascus can establish a functional administrative and legal framework capable of supporting such cooperation.

Despite deep historical and economic ties between the two countries, reviving meaningful economic connectivity remains a long-term goal rather than an immediate priority. Some Iraqi officials have floated the idea of restoring the long-defunct Kirkuk-Baniyas oil pipeline, which could provide the country with a valuable Mediterranean export route. However, the project remains highly speculative due to political uncertainties and infrastructural constraints. The mutability of post-Assad Syria, combined with an unclear regulatory environment, makes any large-scale economic venture premature at best.

Similarly, Iraq has historically been a key trading partner for Syria, particularly in sectors such as agriculture, pharmaceuticals, and textiles. Yet current trade volumes remain limited, constrained by logistical hurdles, sanctions-related restrictions, and widespread uncertainty regarding Syria’s economic trajectory under its new leadership. Until greater political and security clarity emerges, Baghdad is unlikely to pursue major cross-border infrastructure projects or economic initiatives with Damascus.

Dialogue between Iraq and Syria does not occur in a vacuum. It is heavily influenced by broader regional dynamics, particularly the actions of Iran, Turkey, and the United States. Tehran, which has long been reliant on both Iraq and Syria as strategic buffers and conduits to the Mediterranean, is recalibrating its approach following Assad’s fall. Iran-aligned factions within Iraq’s Popular Mobilisation Forces (PMF), some of which fought alongside Assad’s forces, are navigating a complex transition. While some have cautiously opened channels with Syria's new leadership, others remain sceptical, wary of the new rulers’ Sunni Islamist orientation.

Turkey’s growing presence in northern Syria adds further complexity to Iraq’s calculations. Ankara’s confrontations with the SDF, its broader regional ambitions, and its evolving posture in Kurdish affairs should all factor into the Iraqi government’s strategic planning. 

Recent peace overtures between Turkey and the Kurdistan Workers’ Party (PKK) have also raised questions about Kurdish dynamics across the Iraq-Syria border. Iraqi-Kurdish factions are monitoring these developments closely, as any shifts in Turkey’s Syria policy could directly impact their own force readiness and political leverage.

Meanwhile, the uncertain future of US policy in Syria also weighs heavily on decision-makers in Iraq. While American forces continue counterterrorism operations in northeastern Syria, primarily in coordination with the SDF, the long-term sustainability of this presence remains in doubt. A potential US drawdown—currently projected for September 2025—could have significant repercussions for Iraq. Should Washington scale back its commitment, a resulting security vacuum could embolden IS remnants, compelling Iraq to step up its border control efforts to prevent the instability from spilling over. 

For now, Iraqi officials are expected to continue pursuing a phased, security-first approach when it comes to relations with Syria. As regional actors, including Turkey, Iran, and the United States, readjust their positions on Syria, Iraq must carefully navigate its own path, ensuring that its national security remains the cornerstone of its Syria policy.

The trajectory of Iraq-Syria relations in the coming months will hinge on whether Syria’s new leadership can establish stability, contain security threats, and lay the groundwork for meaningful regional cooperation. Until then, Iraq’s engagement is expected to remain cautious, pragmatic, and primarily focused on safeguarding its own frontiers.

Photo: Getty Images

New Agreement Boosts Prospects for Connected Grids in the Gulf

The October 9 agreement to finally connect Iraq to the Gulf Cooperation Council Interconnection Authority (GCCIA) marks a significant step toward greater energy integration in the region. Originally established to link the power grids of the six GCC states—Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE—the GCCIA has been gradually expanding its reach. Iraq’s inclusion in this regional grid highlights the growing importance of cross-border energy cooperation to address the rising electricity demands in the Gulf. Iraq’s existing energy ties with Iran, however, suggest that the region could be on the verge of an even more ambitious project: a Gulf-wide power grid that includes all eight Gulf states. 

Energy demand in the Gulf has surged over the years, driven by rapid population growth, industrialization, and the region’s heavy reliance on energy-intensive processes such as water desalination. Between 2010 and 2023, the Gulf's population grew from 153 million to 194 million, with projections indicating it could exceed 300 million by 2050. This population boom has placed immense pressure on power generation systems, which remain dominated by fossil fuels. In 2022, electricity demand alone accounted for about 15% of the total energy consumed in the region, with per capita electricity consumption growing by 74% between 2000 and 2022. This rise in demand is largely the result of increased industrial and commercial activity, infrastructure development, and economic growth, all of which require significant amounts of electricity.

Moreover, most regions surrounding the Gulf experience extremely high temperatures during the summer months, often reaching 50°C. As a result, space cooling has become essential, further driving up electricity consumption. The scarcity of freshwater in the region also leads to heavy dependence on desalination, which is a highly energy-intensive process. Reverse osmosis, one of the commonly used desalination technologies, is particularly reliant on electricity for mass production. Additionally, Gulf governments have historically subsidized electricity, making it relatively cheap for consumers. While this has helped meet public demand, it has also encouraged inefficient consumption patterns.

As of 2023, the Gulf’s combined installed power capacity stood at 272 gigawatts, with 70.4% of electricity generated from natural gas, 25% from oil products, 2.2% from nuclear, 2.2% from renewables (hydro, solar, and wind), and 0.2% from coal. The residential and commercial sectors are the largest consumers of electricity in the Gulf, accounting for 40% and 30%, respectively. In contrast, the industrial and agriculture sectors make up 22% and 6%. In 2022, the total carbon emissions from electricity generation in the Gulf amounted to about 700 million tons, representing 38% of the region’s total energy-related carbon emissions.

Cross-border electricity trade has also become an important feature of the Gulf’s energy landscape to meet rising demand. Between 2016 and 2022, the accumulated electricity trade in the region amounted to 126.5 terawatt-hours (TWh). Notably, about 55% of this trade involved Iran, which exports electricity mainly to Iraq while importing from countries such as Armenia, Azerbaijan, and Turkmenistan. Iraq accounted for 40% of the region’s electricity trade, all of which was imported from Iran. The GCC countries accounted for the remaining 5%, exporting and importing electricity among themselves through the GCCIA grid.

Iraq, in particular, has struggled with chronic electricity shortages. Despite an installed generation capacity of around 29.4 GW, inefficiencies and under-maintenance have reduced Iraq’s available capacity to just 15.7 GW. In 2022, peak electricity demand reached 30.5 GW, nearly double the available capacity, leading to regular power outages. Iraq has long relied on electricity and natural gas imports from Iran to help meet its energy needs. In 2022, Iran exported 3.5 TWh of electricity to Iraq through four transmission lines, and the two countries signed a five-year agreement in 2023 to import 50 million cubic meters of Iranian gas per day. These imports have been especially crucial during the summer months when electricity demand peaks.

However, Iraq’s reliance on Iranian energy is complicated by US sanctions on Iran. Since the US withdrew from the Joint Comprehensive Plan of Action (JCPOA) in 2018, Iraq has received waivers to continue importing Iranian electricity and gas. Yet, delayed payments and mounting debt—estimated at $11 billion—pose significant challenges. Iraq spends about $4 billion annually on Iranian energy, but US sanctions have delayed the country’s ability to make timely payments, leading to substantial debt accumulation. To settle this debt, Iraq proposed an oil-for-gas barter deal in 2023, allowing it to repay Iran through crude oil. However, opposition from the US Congress and ongoing conflicts in the Middle East continue to hinder the smooth functioning of Iraq-Iran energy cooperation.

Iran itself faces significant domestic energy challenges, including infrastructure problems and environmental factors such as droughts that have reduced its hydroelectric output. In 2021, Iran faced a 12 GW gap between peak summer electricity demand and supply. These domestic issues highlight the potential benefits of integrating Iran into the broader GCCIA grid, which could help stabilize Iran’s power system while benefiting the region as a whole. Iran’s vast land area and renewable energy potential—particularly in solar and wind—could complement the Gulf’s energy needs. By connecting Iran to the GCC grid, the region could also better manage electricity demand across different time zones, as argued by Robin Mills, leveraging the 1.5-hour time difference between eastern Iran and western Saudi Arabia to extend the availability of solar power during peak hours.

The potential for a Gulf-wide energy grid that includes Iran, Iraq, and the six GCC states presents significant opportunities for enhancing energy security, sharing resources, and balancing electricity supply and demand across the region. However, significant challenges remain. 

Expanding the GCCIA grid to include Iran would require substantial investment in infrastructure, including new transmission lines and modern grid management systems. Iran’s aging power infrastructure would need to be upgraded to ensure reliable connectivity with the Gulf states. Additionally, coordinating electricity markets and pricing across such a diverse group of countries would require careful negotiation and planning. Geopolitical tensions as well as US sanctions, pose other major obstacles to integrating Iran into the GCCIA grid. 

Despite these challenges, a Gulf-wide grid could foster greater political and economic cooperation. Energy interdependence could reduce regional tensions and encourage collaboration on other critical issues, such as water security and climate change adaptation. The Gulf is particularly vulnerable to the effects of climate change, including extreme heat, water scarcity, and rising sea levels, all of which could destabilize power grids. Multilateral cooperation on energy could play a key role in mitigating these risks in the Gulf.

The agreement to connect Iraq to the GCCIA represents a turning point in the Gulf’s energy landscape, opening the door to broader regional cooperation. With regional diplomacy expanding between Iran and the Arab states of the Gulf, the possibility of integrating Iran into a Gulf-wide electricity grid becomes an increasingly tantalizing prospect. 

Photo: GCCIA

Iraq and Turkey Seek Cooperation Through Connectivity

Spearheaded by Iraq and Turkey, the Development Road Project (DRP) is an ambitious trade route connecting the Persian Gulf to Europe through rail, road, and port infrastructure. The project intersects with other regional connectivity efforts which aim to transform the Middle East’s from a region beset by insecurity and conflict into a hub of trade and economic opportunity. In essence, the DRP offers a vision for future regional cooperation.

Iraq and Turkey view the project as a foundation for a new partnership based on shared economic interests. Iraqi officials believe that the DRP will have "great impacts on Iraq’s bilateral relationships with its neighbours," allowing Iraq and its neighbours to develop relations "on the basis of common interests." Turkish President Recep Tayyip Erdogan has heralded the project as "the new Silk Road of our region." Both governments have high hopes that the DRP open a new chapter in their bilateral relations, while also elevating their geopolitical stature as a central node connecting Asia and Europe.

Altogether, the DRP consists of three phases, set to be completed by 2028, 2033, and finally 2050. The total investment in the project is expected to be around $24 billion in the next three decades. The United Arab Emirates and Qatar have agreed to contribute financially to the project, alongside investments from the other partner countries. 

The route starts at Grand Al Faw port in Iraq’s Basra, which is only now finishing its first stages of completion as it prepares to enter operation in 2028. It will follow the Euphrates River to Nasiriyah, pass through the holy Shia pilgrimage cities of Najaf and Karbala, continue to the capital Baghdad, and then proceed to Mosul. From there, it will reach the southern Turkish border city of Mersin before finally extending to Europe.

However, the project faces numerous obstacles. For Turkey, the project is contingent Iraq’s support for curtailing the PKK, a Kurdish militant group. For Iraq, the project depends on progress in disputes with Turkey over water rights. Meanwhile, Iran could act as a spoiler for the project if it sees its interests undermined. 

Mutual Benefits

To bring the DRP to fruition, Iraqi and Turkish policymakers will need to learn from the failed connectivity projects of the past. A shared oil pipeline running from Kirkuk in Iraq to Ceyhan in Turkey has been shut for over a decade due to disagreements over how the two countries should share export revenues. But the stakes for cooperation may be higher now than before.

 Turkey is striving for better relations with Baghdad after years of disputes over water-sharing agreements and its military operations in northern Iraq against the PKK actions mostly taken without Baghdad’s go-ahead. This is central to Ankara’s new regional strategy to expand its diplomatic footprint by offering economic and security dividends to its potential partners, in a bid to make diplomatic cooperation more attractive. Additionally, the DRP allows Turkey to position itself as a gateway for Gulf countries to access European markets. Turkey has been vocal about its exclusion from other regional connectivity schemes, especially the India-Middle East-Europe Economic Corridor (IMEC), which will passes through Saudi Arabia and Israel.  

For Baghdad, the DRP represents a golden opportunity to diversify its oil-dependent economy—oil exports currently account for 90 percent of government revenues. Iraqi Prime Minister Mohammed Shia al-Sudani is keen to reshape Baghdad from a site of regional competition to a regional mediation hub—leveraging its 'middle position'. Addressing the United Nations General Assembly last year, Sudani expressed his desire for Iraq to be “part of the solution to any international and regional problem.” Sudani also aims to take advantage of Iraq’s strategic location at the mouth of the Persian Gulf to attract new trade and investment projects. Of course, success in these arenas would also boost his popularity ahead of the national elections to be held  in 2025, should he seek a second term.

The DRP has two main selling points. First, according to one estimate, the rail route will save around two weeks compared to the Red Sea-Suez Canal route to Europe, which takes approximately 26 days from Asia—thereby reducing fuel and freight costs associated with shipping goods. Second, the project will reduce regional dependence on the Suez Canal. Since November 2023, commercial vessels travelling to the canal through the Red Sea have been targeted by Houthis forces, under the pretext of the group’s support for Palestine. Consequently, ships have been forced to take the costly detour around the Cape of Good Hope to reach European customers, adding a staggering up to 10 days to the overall shipping time.

Mismatched Expectations

For Ankara and Baghdad, the deals being negotiated alongside the DRP are arguably more important than the project itself, as they attempt to resolve long-standing disagreements. As a condition of its support for the DRP, Ankara is seeking more concessions from Baghdad regarding the PKK, which Turkey has designated as a terrorist organisation. The PKK has long maintained a presence in Iraq’s northern stronghold, allowing it to operate close to the Turkish border. Curtailing the PKK has a practical purpose as well—the group has repeatedly targeted the Kirkuk-Ceyhan pipeline and could pose a threat to DRP infrastructure.

Following his visit to Iraq on April 4, his first since 2011, Erdogan claimed to have signed a security pact with Sudani against the PKK. Erdogan emphasised that Iraq had finally recognised the PKK as a “terrorist” organisation. However, the Iraqi central government designated the group as a “banned” organisation, stopping short of labelling it a “terrorist” group. It is conceivable that Ankara made these initial claims to pressure Baghdad into adopting a full designation. A source with knowledge of the Turkish position told the author that Ankara understands and does not expect Iraq to combat the PKK in its strongholds or engage in direct confrontation. Instead, Ankara suggested that the Iraqi central government could implement alternative measures to curb the PKK’s operational abilities in Sinjar, such as increasing checkpoints in the areas and prohibiting permits for PKK offices

These more pragmatic requests contrast starkly with the reality on the ground. In April, Erdogan threatened a major offensive to clear the PKK from Iraqi Kurdistan once and for all. Following through on these threats, Ankara launched a new offensive in Iraq in May, which accelerated in June. While the offensive has been more limited than observers expected, the Iraqi Ministerial Council for National Security declared that it “rejects Turkey’s military operations within Iraq.” Although this statement is likely more for public consumption than anything else, it indicates that a prolonged incursion could build public resentment. 

For its part, Iraq has focused its demands surrounding the DRP on services and water management rather than security. Baghdad has long condemned Turkish dams for reducing water levels in Euphrates and Tigris rivers—crucial for Iraqi irrigation. In a positive development, both countries signed a framework agreement to resolve the water issue during Erdogan’s visit. But ongoing meetings between bilateral working groups, formed after Erdogan's visit, have yielded little progress, making it unlikely that Baghdad will receive its fair share of water anytime soon.

Pushback from Iran

In Iraq, the DRP has also faced local opposition from Iran-backed groups who could scuttle the project—Ankara and Baghdad have done little to secure broader buy-in for the project among these groups. The new revenue streams associated with the DRP could stir-up competition among the different groups comprising the Popular Mobilisation Forces (PMF)— an umbrella organisation comprising various military groups in Iraq, many of which are backed by Iran.

The spokesman for the Iran-backed Shia paramilitary group Kata’ib Hezbollah announced that the road “remains a concern” without specifying the reason. Kata’ib Hezbollah has demanded “guarantees” about the project from Iraqi authorities sparking fears that they could hinder the DRP’s progress. Meanwhile, an official from the parliamentary bloc representing the Iran-backed Asa’ib Ahl al-Haq took to social media to state that the project represents a “stain in the history of Iraqi politicians.” However, Asa’ib Ahl al-Haq is unlikely to act as a spoiler given its growing role within the PMF that may increase its chances of receiving substantial revenues from the DRP project.

Ultimately, Iraqi paramilitary groups might be tempted to target the DRP if they are not included or perceive their interests to be at risk. In the past, the PMF have attacked Turkey’s interests, including energy export infrastructure, in response to its military operations in Sinjar– a hotspot of competition between Ankara and Tehran.

Given Iran’s deep ties to Iraq and its significant sway over several armed groups in the country, its stance could make or break the project. The role it chooses will also depend on the fluctuating state of Iran-Turkey relations. Iran has shown wariness about connectivity projects that could rival its own aspirations to become the primary hub for transit routes, particularly with the development of the International North-South Transport Corridor (INSTC). Tehran’s support for the DRP is therefore conditional on its involvement. Specifically, Iran aims to complete its first railway link with Basra soon. If this railway connects to the DRP—a possibility Iran is pursuing—it would enhance trade with both Iraq and Turkey. This point was made clear during a meeting in June between Iranian Acting Foreign Minister Ali Bagheri Kani and Sudani, where Iran expressed its willingness to "contribute" to the project.

Looking Ahead

Importantly, the Iraqi government has yet to conduct a comprehensive feasibility study to assess the mega project's viability. Turkey and Iraq seem comfortable with the delay, viewing it as a confidence-building measure that could eventually lead to greater economic consolidation. However, the real challenge lies ahead: addressing the longstanding issues that have strained Iraq-Turkey relations for years, rather than skirting around them with vague promises that will only resurface later and derail the project. In the absence of security-focused negotiations to address these issues, they risk becoming bigger obstacles to the DRP’s success.

Much of the diplomatic burden unfairly falls on Iraq to rally support among the different armed groups and governorate-level political groups—who may act as spoilers if their interests are not met. Baghdad should engage seriously with groups likely to feel excluded, while both countries should adopt a multi-pronged diplomatic approach to secure regional buy-in.

Before this can happen, both nations urgently need to flesh out the funding details and conduct a feasibility study to align expectations among the many stakeholders. Ultimately, in a region where infrastructure projects too often get caught in the crossfire—and considering the unpredictable nature of the Iraqi political sphere—this venture requires a more proactive approach to succeed. Political will alone is not enough.’

Photo: AK Party

Accelerating the Gulf's Energy Transition in the Wake of Russia's War

This article is part of a series exploring regional energy cooperation in the Gulf and is published in cooperation with Istituto Affari Internazionali.

The 2022 Russian war against Ukraine has been both a gift and a curse for oil producers in the Persian Gulf. In the short term, the war has created restraint for the development of renewables, contributed to the high oil demand, and in doing so demonstrated the need for more international investment in oil exploration and drilling. High oil prices and the resulting profits enabled the member states of the Gulf Cooperation Council (GCC) to partially offset financial losses from previous years—and also benefitted the economies of these member states. However, the transition to a new model of global energy consumption has not been cancelled—it has only been delayed.

This conflict clearly demonstrated the economic risk of excessive dependence on hydrocarbon-based resources, and as a result the leading GCC countries began to develop clear action plans for speeding up the energy transition. For the Gulf’s traditional oil producers, this is a huge challenge: after the short hiatus forced by the war, the race to switch to renewable energy will restart and force the Gulf states to once again work against time to prepare the oil sector for the “post-oil” era.

In general, most GCC states base their current strategy on an understanding of two contradictory but coexisting trends in the global energy market—trends created by the war in Ukraine. The first relates to national security issues: individual countries may find it necessary to extend their hydrocarbon use. The second and conflicting trend is that some players may accelerate their transition to renewables for the same security considerations and to reduce their dependence on fluctuating hydrocarbon prices.

Economic Development and Political Considerations

If the GCC countries are to reduce their current economic dependence on hydrocarbon exports, they need to diversify on a large scale into renewable energies. Alongside this, there is a need to maximise income from oil exports—something which can be achieved by simultaneously reducing domestic consumption and increasing oil output. However, GCC members will need to avoid increasing the volume of CO2 emissions, as these damage the health of the population and cause environmental damage.

But the political considerations are tied to the rentier social contract model of the states in the GCC. This model is now becoming too costly; budgets are uncertain against a backdrop of fluctuating oil prices. The fourth energy transition—and related processes, such as decarbonisation, digitalisation, and the development of renewable and alternative energy sources—will enable Gulf states to generate additional sources of income to finance government subsidies and social programmes. The development of the renewables sector will additionally contribute to preserving the social contract, provided that  its growth will also lead to the provision of new and high-paying jobs for the citizens in the public sector.

 External Influences

Other countries are placing increasing pressure on GCC states to accelerate their energy transition—and to make the oil they export more environmentally friendly (a marketing requirement formulated by the global push for energy transition). To maintain the competitiveness of their oil in the global market, Gulf producers are forced to take steps to reduce the environmental harm that can be caused by the production and transportation of hydrocarbons. The active spread beyond the United States and the European Union (including in Asian countries, who have been the traditional sales market for the GCC countries) of what some term the “green agenda” further increases the importance of presenting hydrocarbon products as green and minimising the negative impact on the environment.

Moreover, GCC countries will inevitably be pressured by the international community to implement international climate agreements. In 2022, the Arab states took an active part in the COP 27 climate summit in Egypt, and again in 2023, when they held the COP 28 summit in the UAE. The latter was a major milestone: its final document not only summed up what the international community had done within the framework of the Paris Agreement, but also recognised the need to phase out energy derived from fossil fuels. In light of these developments, by early 2024, almost all GCC states had put forward their own net-zero emissions targets.

Circular Carbon Economy

It is important to note that the final COP 28 document calls for a gradual phase-out of the use of oil in energy systems but emphasises that this process should be carried out without prejudice to hydrocarbon producers. This duality fully meets the needs of the Persian Gulf countries. They are ready to provide consumers with hydrocarbons for as long as they are needed—for example, the European Union, which seeks greater independence from Russian supplies—and cooperate with the international community in preparing for a “post-oil” world. Under these circumstances,  most GCC states now speak not only about the need to increase the proportion of energy generated by renewables, but also about the goal of creating a special form of the Gulf’s circular economy that could still be built on the base of the region’s hydrocarbon riches.

Thus, the so-called circular carbon economy concept promoted by Saudi Arabia does not reject the further development of oil and petrochemical industries of the Kingdom but implies the introduction of obligatory compensation measures for emissions through the active use of carbon capture technologies (CCUS). It also argues about the increased role of renewable energy sources in the production and transportation of hydrocarbons. Alongside these plans, the Gulf countries are also developing a strategy to become world-leading hydrogen producers.

Options for Cooperation

In Iran, deteriorating climatic conditions and attendant ecological problems are creating extra incentives for the government to increase its efforts to make the energy transition and restructure its economy. In a sense, the country started investigating ways to develop its own renewable sector long before the idea became popular among its neighbours. Possessing substantial hydro, wind, and solar energy-producing potential, Iran achieved substantial progress in developing these in 2000–2010. Unfortunately, any further progress was substantially slowed and in some areas even prevented by the sanctions placed on the country from 2010 onwards, although by 2022 Iran was still among the top five countries in the Middle East in terms of how much electricity is generated by renewables. Its experience in the renewables development field can still be of interest to other Gulf countries, and Tehran itself can learn a lot from the GCC member states about the use of CCUS technologies and renewables in the production and transportation of hydrocarbons.

The current situation might intensify levels of cooperation among the Gulf countries, and also between these countries and international partners. There is a good incentive to cooperate—between both the Gulf players within OPEC and those on the bilateral track—as the GCC economies and oil sectors will have a lot of challenges in common that they need to prepare for. Meanwhile, the Gulf states need to ensure a stable and long-term demand for Gulf hydrocarbons, which means regional players must invest more in Asian economies and attract Asian investments. Moreover, an important element of the Gulf countries’ economic strategies is now to attract and allocate in-house and international investments in both the traditional and renewable energy sectors.

Alongside other developments, the war in Ukraine has led to a clear intensification of European diplomacy in the Gulf and a revision of some past practices. Traditionally, European concerns about Gulf domestic policies limited the interaction between EU countries and GCC states in the energy field, but many of these concerns have been pushed aside. Instead, the European Union has demonstrated its readiness to help the GCC countries in their own transition to renewable energy sources, making it clear that it expects the Gulf to help the EU move away from its dependence on Russia’s oil and gas and ease the influence of geopolitical factors on oil prices.

 Road Ahead

It is worth noting that the GCC countries do not intend to entirely replace the hydrocarbon sector with renewable energy production or to phase out oil usage or the development of petrochemicals. Instead, the Gulf states see the sustainable energy sector (as well as those industries accompanying the fourth energy transition) as a complement and addition to their hydrocarbon-based economies. The wealth they have accrued through hydrocarbons will allow them to accelerate diversification and make the “old” oil industry look eco-friendly. None of the Gulf states has abandoned plans to develop petrochemical production, seeing in it an opportunity to conveniently and easily diversify GCC economies and as a response to the question of what to do when oil is not in demand as feedstock for fuel production. As oil market analyst Tsvetana Paraskova puts it: “Renewable energy could replace more and more fossil fuels in power generation and transportation, but these are not the only industries using oil and gas. From medicines to cosmetics, clothing, and technology, the world will still need oil.” This is well understood in the Persian Gulf, and the various crises have shown that fluctuations in demand for hydrocarbons have not always depended on the demand for fuel.

In the medium and long term, adaptation to a new energy order would require Persian Gulf oil producers to restructure their economies and revise their social contracts to withstand a decline in demand and a reduction in prices for oil resources. They would need to rebuild their energy systems for a lower-carbon future while simultaneously ensuring the survival of their oil industries. Moreover, the Gulf states clearly understand the need to adapt to the growth of competition in traditional markets, particularly in Asia, and will need to consider multilateral cooperation to offset some challenges.

Looking into the future, the hydrocarbon production and petrochemical sectors will remain the backbone of the Gulf countries’ economic structure. The main motivations that shape the development plans in the region are twofold: to increase sources of income through diversification, including the development of hydrogen exports; and to ensure the profitability of the traditional oil sector for as long as possible. The likely success factors in this quest will be the reduction of the cost of producing both hydrocarbon-based and sustainable energy, the reduction of harmful emissions from traditional industries, and the maintenance of the necessary level of investment in both the oil sector and the new energy sources. As UAE Minister of Energy and Industry Suhail Mohammed Almazroui succinctly put it, “drop the cost, drop the carbon, maintain the investment.”

Photo: Dubai Protocol Department

The Case for Cooperation on the Energy Transition in the Gulf

This article is part of a series exploring regional energy cooperation in the Gulf and is published in cooperation with Istituto Affari Internazionali.

Regional security and economic development among the Gulf states—Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates (UAE)—can improve if cooperation is fostered in the energy, minerals, and water industries, by encouraging joint exploitation of resources, establishing neutral regional zones, and creating energy sources that are interconnected. The positive diplomatic environment of 2023, particularly after the rapprochement between Iran and Saudi Arabia after seven years, holds the key to unlocking a new era of cooperation in the region across the resource mix.

Fostering Renewable Energy Cooperation

The region’s geographic location means it receives some of the highest annual amounts of solar energy in the world—more than 2,100 kilowatt-hours (kWh)—and a wind speed that can reach about 10 meters per second (m/s). These natural clean energy resources could be exploited regionally and also exported beyond the region, benefitting the economy both directly and indirectly and encompassing many sectors of industry, including energy, manufacturing, and information technology.

The Gulf Cooperation Council Interconnection Authority (GCCIA) envisions establishing a robust interconnected power grid. This would leverage the region’s abundant solar and wind resources and further position the are to become a hub for producing and exporting clean energy. As of early 2024, part of the region is already interconnected through this grid—from Oman in the south through the UAE, Saudi Arabia, Qatar, and Bahrain, and then to Kuwait in the north. In addition, Iraq recently signed an agreement with the GCCIA to join the grid. GCCIA has an ambitious plan to extend to Eurasia and East Africa. Iran is also part of this planned grid, as is Turkey. Such interconnection would give domestic power grids more reliability and stability in the face of increasing challenges, such as unexpected electric load rise, as well as blackouts due to natural disasters or equipment failures.

Envisioning a Gas Network

Expanding the gas sector across the Gulf is a potential solution to some of these problems. Doing so would pave the way for a joint gas pipeline network that could facilitate hydrogen transmission—which is key to achieving net zero carbon emissions. Several Gulf countries have either not fully developed their gas production sectors or have insufficient resources. Iraq, Kuwait, and the UAE are net gas importers, and in 2022 imported 50%, 40%, and 20% of their gas demand respectively (see chart below). For example, Iraq imports most of its gas from Iran, and the UAE sources much of its gas from Qatar through the Dolphin pipeline.

Kuwait is the only Gulf country to source a large percentage of its imported gas (46%) from non-Gulf regions, such as Africa, Europe, and North and South America. This sourcing of around 4 billion cubic meters of natural gas annually from faraway countries is deemed to be a lost economic opportunity for Gulf countries, including Iran and Qatar.

Expansion of the gas sector in the Gulf would play a key role in the region’s energy transition. Having a joint pipeline network capable of carrying hydrogen products could also pave the way for the region to become a world hub in the production and export of carbon-neutral (blue and green) hydrogen.

Gulf Minerals Powering the Future

The Gulf region’s mineral wealth, essential for energy transition, has come to the forefront. Recent discoveries of lithium, cobalt, nickel, copper, and other minerals mark a turning point in the global race to secure mineral supply chains. These minerals are essential components of renewable energy technologies and energy storage systems.

Recently, Iran announced the discovery of a huge lithium deposit—an estimated 8.5 million metric tonnes—on its territory. This makes the country the fifth lithium reserve resource holder after Bolivia, Argentina, Chile, and the United States. Moreover, Iran also revealed the discovery of additional vital minerals, among them manganese, nickel, and cobalt.

Saudi Arabia also recently announced the discovery of mineral reserves with an estimated market value of US $64 billion. Among the discovered minerals related to energy transition are copper, iron, and nickel. Oman, too, has announced an ongoing project to update its national geographical and geological minerals database with more discoveries of copper and iron reserves.

The envisioned regional collaboration would include joint investments in developing the infrastructure needed in the region for extraction, preliminary mineral processing, and export logistics. Joint efforts to invest in the management of mineral resources could position the Gulf as a key influencer in the global transition to clean energy. This could be pursued by establishing joint venture companies where investors include the Gulf states’ public and private sectors.

Working together, the Gulf states could pool resources, share costs, and achieve economies of scale. By doing so, the region would be able to collectively manage and mitigate risks associated with volatile commodity prices, environmental challenges, and geopolitical uncertainties. As a result, such collaborative ventures would contribute to political stability in the region. The Gulf countries would have broader access to markets and assert their role as key players in the energy transition agenda.

It is worth noting that Iran’s current economic sanctions may discourage other states from establishing joint ventures. However, these restrictions do not prevent discussion of joint strategies for making the most of the Gulf’s mineral reserves and developing regional value chains.

Developing Shared Fields

The collective strength of Gulf countries lies in their vast natural resources, accounting for approximately 48% and 40%, respectively, of the world’s proven oil and natural gas reserves. Shared oil and gas fields, as illustrated in the table below, are poised for active development, offering potential solutions to regional energy challenges. 

In early 2022, Kuwait signed a memorandum of understanding with Saudi Arabia to develop the joint offshore Arash/Durra gas field in the partitioned neutral zone. However, Iran has objected to the agreement and demanded its share. Most likely the Arash/Durra field will not be exploited in the short term until an agreement is reached on the demarcation of maritime borders between Iran, Kuwait, and Saudi Arabia. However, joint exploitation of Arash/Durra could be achieved without compromising the territorial sovereignty of the three countries; Iran is already jointly exploiting oil and gas fields with neighboring Gulf states, including the South Pars/North Dome gas field with Qatar and the Esfandyar/Lulu oil field with Saudi Arabia. These joint models can provide lessons and open the door for pragmatic and logical negotiations to enable cooperation in exploiting other joint fields, including Arash/Durra.

Establishing a Regional Water Network

A region is labelled as water-scarce when the availability of natural renewable water (waterfalls, rivers, freshwater lakes, and aquifers) is below 1,000 cubic meters per person per year. This definition implies that all Gulf countries except Iran are under the natural water poverty line. Consequently, these countries depend on energy-intensive seawater desalination to meet their potable water demand. The power stations in these countries are mostly cogeneration systems that produce electricity and heat.

Addressing water scarcity is paramount for Gulf countries, especially those heavily reliant on desalination. Despite challenges including geopolitical tensions, a strategic imperative is to establish a regional water interconnection network. With this in mind, GCC leaders decided to carry out a water interconnection study in the year 2000. The proposed network would supply fresh water to all GCC states from desalination plants that would be built on the shores of certain states. Three desalination plants were proposed—to be built in Sohar, Oman; Al-Sila in the UAE; and Al-Khafji in Saudi Arabia. Unfortunately, there has been no tangible action on the project since 2013.

There is an urgent need for increased cooperation in the areas of seawater desalination, water treatment, water resource management, and water transmission across the Gulf region if its future is to be more sustainable. The latter of these in particular is a key survival strategy, and such a water network would make the region resilient to natural and changing environmental conditions challenges. The feasibility of a regional water grid should not therefore purely be based on financial profits—it also needs to consider the grave water scarcity challenges the region is poised to face in the years ahead.

Moving Towards Sustainable Horizons

While it may take time to achieve regional cooperation in energy, water, and environmental sustainability, diplomatic rapprochement between Iran and Saudi Arabia could pave the way for positive outcomes. Policies should focus on establishing interconnected regional infrastructures, including gas and water networks, and implementing a joint financing system to support balanced development across the Gulf region. It is essential to overcome political differences and address challenges through dialogue for these policies to succeed.

As we chart the course toward sustainable horizons in the Gulf, the call for cooperation echoes loudly. Embracing shared objectives, drawing on collective strengths, and navigating challenges with a collaborative spirit will propel the region towards a future defined by sustainability, resilience, and mutual prosperity.

Photo: Shams Power

Rising Electricity Demand Requires New Thinking on Gulf Grids

This article is part of a series exploring regional energy cooperation in the Gulf and is published in cooperation with Istituto Affari Internazionali.

The demand for power is rising in the Middle East and North Africa (MENA) region; the 2023 Electricity Market Report by the International Energy Agency (IEA) estimates that this demand will grow at an annual rate of 2 percent in the 2023–25 period. Most of this growth is driven by Iraq, Iran and Gulf Cooperation Council (GCC) countries, notably Saudi Arabia, Oman, and the United Arab Emirates (UAE). For these countries, the same report expects electricity consumption to increase, on average, by 2–3 percent between 2022 and 2025. The main drivers of this are population growth, and specific uses such as cooling and water desalination.

The effects of climate change, such as a higher number days when maximum temperatures exceed 35 degrees Celsius, are driving demand upwards in the region. But measures to boost energy efficiency are also on the rise. A recent IEA study based on temperature projection models shows how these trends are particularly affecting the region. For example, Saudi Arabia has accelerated the roll-out of smart meters in the country while partially reviewing its electricity tariffs to support more rational consumption patterns. If these measures were maintained and widened throughout the region, the growth of demand for electricity would potentially be mitigated. The Emirate of Dubai currently has over two million smart meters installed. Oman also has a national smart meter programme overseen by the Authority of Public Services Regulation, which aims at installing 1.2 million smart meters by 2025, covering all of the country’s electricity consumers.

At the same time, oil and gas remain dominant in the MENA region, with natural gas playing a prominent role. During 2023–25, the IEA expects gas-fired power to generate the most electrical capacity. For instance, in 2024, the same IEA report predicts that two thirds of the 60 gigawatt (GW) capacity being added to the whole Middle East region are expected to come from natural gas, with the rest being split between nuclear and renewables. At the same time, these countries are seeing the effects of renewable energy sources being increasingly deployed, in particular solar photovoltaics (PV).

Between 2023 and 2028, the IEA predicts that the Gulf region is expected to increase its renewable power generation capacity by over 40 GW. This represents almost half of Saudi Arabia’s current power generation and is more than the total power generated by the UAE today. This growth is dominated by utility-scale solar PV. In addition, the report cited that hydrogen also represents around 13 percent of extra renewable power capacity, mainly enabled by government-backed incentives to stimulate hydrogen trade. Other factors supporting the growth of renewables for hydrogen include high levels of solar irradiation, land availability, and port infrastructure.

While this growth remains impressive, it could increase faster. Possible strategies to further accelerate growth might include encouraging more competition between utility providers, introducing domestic tariffs that reflect individual users’ costs, addressing contractual issues with existing fossil fuel providers, and better supporting power storage systems to be flexible.

Cross-border electricity trading can also improve the deployment of renewables. However, international connections in the Gulf today only represent a small proportion of each country’s electricity consumption. The six-member GCC Interconnection Authority, which has the remit to do this, was established in 2001, but as of 2024 has only been able to support 1.2 GW of capacity. The recent linking of Iraq to the network through Kuwait, and ongoing discussions about a Saudi–Iraqi connection, would strengthen the region’s interconnectedness in terms of power generation.

Of course, regional particularities need to be considered, for example consumption patterns related to climatic conditions. Innovative economic models are needed to address the need for system flexibility as a result of changes in peak demand between seasons, and between day and night. While leaders in the GCC are looking into the diversification of power supplies without compromising grid stability—whether through renewables or nuclear—leaders in Iran and Iraq face a growing mismatch between supply and demand.

For instance, in 2021, Iran had to face a 12 GW gap between peak summer demand and supply. Severe droughts limited hydropower in a country that generates 4.6 percent of its electricity from that source. Although there were also other factors at play, both domestic and external, the effects of climate change and limited diversification in the power generation sector cannot be discounted as factors limiting the overall resilience of the current system. Neighbouring Iraq also faced similar challenges, despite the domestic context being different. Nevertheless, both countries are investigating whether renewable power capacity can be developed faster. For example, Iran has set a 2025 target for 10 GW of renewables, while Iraq is looking into linking oil and gas investments with large-scale renewables projects. However, it is worth pointing out that reforms in the electricity market remain a key prerequisite to address the power sector crisis.

There can be no large-scale transformations in electricity markets without adequate reforms. In the Gulf, there remain vast opportunities related to tariffs and subsidies. While investments in renewables in the region have been enabled by the active involvement of governments (where land availability and permissions enable large-scale projects, such as in Oman and the UAE), tariff and subsidy reforms should remain a priority. Otherwise, current and future renewables projects will not be financially viable. Reforms such as these would also allow utility companies in the region to recoup their costs and allow for investments in the grid infrastructure. These investments would pave the way for further renewables to be developed and deployed, such as decentralised solar PV.

The dynamics surrounding power markets in the MENA region require addressing a series of priorities that sometimes come into conflict with each other. Governments are expected to provide secure, reliable, and affordable electricity to all. In a geographical area significantly affected by the effects of climate change, the need to mitigate these impacts is probably more pressing than in any other region. Climate change not only creates new patterns in demand, with a heightened need for cooling and desalination, but it also affects the resilience of the power system itself. Higher temperatures, droughts, higher sea levels, or flash floods can all significantly affect operations on the supply side and reduce output. This is not limited to conventional power generation (oil and gas); nuclear and solar PV units can also be affected.

In this challenging regional context, where priorities are continuously shifting, it remains important that the climate crisis increasingly plays a central role in how regional leaders think about their future energy systems. Climate change has significantly increased the complexity of power markets. It is essential to pay more attention to how systems are planned and designed, and how they must operate in the face of new demands.

Photo: Emirates Nuclear Energy Corporation

Climate Policy and Cross-Border Hydrocarbon Development in the Gulf

This article is part of a series exploring regional energy cooperation in the Gulf and is published in cooperation with Istituto Affari Internazionali.

The Gulf countries are leading global producers and exporters of oil and gas. They have long reserves lives at current production levels, well beyond 2050, and substantial potential to increase reserves through field development, enhanced recovery, and exploration. They are intrinsically low-carbon producers measured by upstream emissions per barrel, although this is obscured in Iran and Iraq by high levels of flaring of unused associated gas (a by-product of oil production) and leakage of methane. They have strong involvement of state oil companies in oil and gas production, though this varies from an effective monopoly (Kuwait) to a leading role for international operators (Iraq and Oman).

With the exception of Iraq, they have large domestic petrochemical industries. Saudi Arabia and, increasingly, the UAE, have extensive international investments in refining and petrochemicals across the US, Europe, and Asia. While this is mainly on their own account, Kuwait does have a stake in the important new Duqm refinery in Oman. The region’s oil exporters also make use of the extensive oil storage and bunkering facilities in the UAE and Oman. On the other hand, Qatar is the world’s biggest LNG exporter and has a major expansion programme to be completed during 2026-27, Oman and the UAE are smaller LNG exporters (the UAE also expanding), while Iran is an important supplier of gas by pipeline to Turkey and Iraq.

The role of the Gulf states as oil exporters has limited the potential for cooperation between them. The dominance of the state in the upstream industry means that cross-border hydrocarbon investment is very limited. Mubadala Energy, the energy arm of the Abu Dhabi government strategic development company, has some upstream assets in Qatar and Oman, and utility Taqa has oil operations in the Kurdistan region of Iraq. QatarEnergy recently entered a project in southern Iraq led by TotalEnergies for development of oil, gas, water injection and solar power. Sanctions and political disputes have prevented any GCC investment in Iran’s hydrocarbon sector. There has been some interest, for example, and various plans since the early 2000s for gas and electricity connections, and most recently, discussions between Saudi Arabia, the UAE, and Iran in July 2023 concerning investment and the development of shared fields.

Gas is more promising for cooperation, given that some of the Gulf states are relatively gas-short. The most notable project, Dolphin, exports gas from Qatar by pipeline to the UAE, with small volumes continuing to Oman. Dolphin faced opposition from Saudi Arabia, which argued that the pipeline crossed its own maritime territory. A similar plan to supply Qatari gas to Kuwait was entirely blocked by Saudi Arabia, which did not want the smaller GCC states to be linked beyond its influence. Although LNG exports from Qatar to the UAE stopped during the boycott of Doha between June 2017-January 2021, Dolphin continued operating as normal, a sign of its importance to both countries, and of the promise of energy projects to constrain conflict.

Some oil and gas fields in the Gulf lie across borders. In general, countries have developed them competitively, extracting as much as possible without an agreement with the neighbouring state. The most notable field affected by a boundary dispute is the large gas-field Dorra, known in Iran as Arash, which lies partly in Kuwaiti waters, partly in the Kuwaiti section of the Partitioned Neutral Zone with Saudi Arabia, and partly, in Tehran’s view, in Iranian waters. Kuwait’s shortage of gas leads to heavy domestic use of polluting and expensive oil. An agreement on Dorra, perhaps via a joint development zone without concession of sovereignty, could be a way forward. Such agreements have enabled Saudi Arabia to supply half of the oil from the Abu Safa field to Bahrain as part of a boundary settlement and Qatar and the UAE to divide the resources of the offshore Bunduq oil-field.

The most important cross-boundary field, not just in the Gulf but in the world, is called the North Field in Qatar and South Pars in Iran. It is world’s biggest gas field. The field, which also contains shallower cross-boundary oil resources, has been developed by each side without formal agreement, but there are tacit understandings to avoid one side moving too far ahead of the other on extraction levels. Qatar imposed a moratorium on further development of the North Field in 2005, and lifted it in 2017. Ostensibly this was for technical reasons, more plausibly for gas market management purposes, but it also gave Iran time to catch up to and even exceed relative Qatari production levels. As Iran’s own output from South Pars increased, so eventually Qatar was able to decide to raise production further, without risking tensions with Iran over unfair levels of extraction.

More intra-regional gas trade would enable reducing the use of oil in the power sector. Qatar, Iran (if its gas resources were properly developed), and the Kurdistan Region of Iraq, would be natural gas suppliers by pipeline to neighbours. This would require more regional trust, and transparency to put gas supplies on a reliable commercial basis. Cross-border investment in gas-using sectors such as petrochemicals, multi-country gas networks, and robust arbitration procedures, could create structures that would be more resistant to politically- or commercially-motivated cut-offs. Iran is, for example, a 10 percent shareholder in Azerbaijan’s important Shah Deniz gas field and in the South Caucasus Gas Pipeline from Azerbaijan to Turkey via Georgia, along with BP, Russia’s Lukoil and Turkish and Azeri state entities. But the recent history of Russian gas supplies to Europe, and the interruption of federal Iraqi and Kurdistan region oil exports through Turkey, reveals how even long-standing pipeline deals with strong mutual profitability can be derailed.

As COP28 in Dubai signalled, climate policy will exert ever-greater influence on the oil and gas industry: first through requirements to zero-out its own emissions, second through a longer-term reduction in demand, at least for oil. The Gulf countries present a wide spread of economic and environmental vulnerability, and sophistication of climate policy ranges from the very limited (Iraq) to the relatively advanced (UAE). The Oil and Gas Decarbonisation Charter (OGDC) concluded at COP28 was signed by the national oil companies of Abu Dhabi, Sharjah, Bahrain, Oman, and Saudi Arabia, among others, but not by Iran, Iraq, Kuwait, or Qatar.

With the exception of Qatar, all of the Gulf countries are members either of OPEC or the OPEC+ alliance. OPEC and the OGDC, as well as other structures such as the Oil and Gas Climate Initiative, offer potential to foster cooperation on decarbonisation paths within the petroleum industry, which include ending flaring and methane leakage, improving energy efficiency, electrifying operations, and incorporating renewable and nuclear power, implementing carbon capture and storage, piloting carbon dioxide removal technologies, producing sustainable aviation and maritime fuels, and developing hydrogen and its derivatives.

Specific cooperation would include aligning standards and regulations; sharing technological learnings and best practices; conducting joint studies on regional carbon dioxide storage capacity or satellite monitoring of methane leakage; and possibly some shared infrastructure, though this is more challenging and probably not essential. Joint investments, either within the Gulf countries or in third countries, could include the production of low-carbon hydrogen and sustainable fuels.

This collaboration can also include policy-related and diplomatic endeavours, on areas such as carbon caps, prices or taxes, international carbon trading under the Paris Agreement’s Article 6.4, dealing with the growing use of carbon border tariffs, and appropriate certification and regulation for low-carbon hydrogen.

The global energy market has been evolving rapidly, notably with the rise of Asia as the world’s key importer and consumer of energy and emitter of greenhouse gases, and the evolution of the natural gas business into a truly internationalised market via LNG trade. Most recently, the Russian invasion of Ukraine, the elimination of most of its pipeline gas exports to the EU, and a near-total ban on imports of Russian oil by the EU and other Western countries, have reshaped the global energy market and the patterns of trade in Gulf energy. The increasing US-China tensions, and the moves towards more diversity and robustness in supply chains and greater domestic self-sufficiency in key energy-related materials and technologies, is another emerging and evolving theme.

Greater Gulf cooperation on hydrocarbons, as a part of balanced strategies incorporating climate protection, could manage some of these threats and promote longer-term cooperation solutions to problems facing the region’s critical economic sector.

Photo: Aramco

When it Comes to Middle East Diplomacy, Chinese and European Interests Align

A version of this article was originally published in French in Le Monde.

In March, China managed to a broker a détente between Iran and Saudi Arabia, achieving a diplomatic breakthrough that had eluded European governments. But Europe and China have shared interests in the region and there is scope for the two powers to work together to foster further multilateral diplomacy.

Europe and China, which both depend on energy exports from the Persian Gulf, have long relied on the US-led security architecture in the region. But the 2019 attacks on oil tankers in the UAE and oil installations in Saudi Arabia, widely attributed to Iran, were a watershed moment. Shifting US interests and President Trump’s erratic reaction to those attacks forced the Chinese and Europeans to take more responsibility for regional security over the last four years.

In 2020, China presented its idea for regional security in the Persian Gulf, arguing that with a multilateral effort, the Persian Gulf region can become “an oasis of security.” In the time since, the agreement between Saudi Arabia and Iran, signed in March, can be considered an outcome of such efforts.

European governments have also sought to back multilateral diplomacy. France was intent on creating a platform for Tehran and Riyadh to engage in dialogue. President Macron helped launch the Baghdad Conference for Cooperation and Partnership that was held in August 2021. The conference was a unique opportunity to gather countries that had not sat around the same table for years. Officials from Iraq, Iran, Kuwait, Qatar, Saudi Arabia, and the UAE, in addition to Egypt, Jordan, Turkey, and France participated. Oman and Bahrain joined the second gathering which took place last December in Amman, Jordan.

The European Union also expressed its support for the Baghdad process. Joseph Borrell said during the Second meeting that “promoting peace and stability in the wider Gulf region…  are key priorities for the EU.” Adding that “we stand ready to engage with all actors in the region in a gradual and inclusive approach.”

The Joint Communication to the European Parliament and the Council on a strategic partnership with the Gulf reflects the EU’s keenness on expanding its engagements with the region, particularly on economic ties. The partnership is focused on the GCC, but it mentions that “involvement of other key Gulf countries in the partnership may also be considered as relations develop and mature”—a reference to Iran and Iraq.

Clearly, China and the European Union have multiple areas of mutual concern in the Persian Gulf region. Ensuring freedom of navigation, the undisrupted flow of oil and gas from the region, and non-proliferation of nuclear weapons are shared priorities. But while China is now a central player in the strategic calculations of all states in the region, the Europeans are being largely left out.

European diplomatic outreach has faltered in the face of new political pressures arising from Iran’s continued nuclear escalations, its involvement in Russia’s war against Ukraine, and its repression of ongoing protests for democratic change.   

The French president was coincidently in China when the Beijing Agreement was signed, and he welcomed the rapprochement between Saudi Arabia and Iran. Given shared interests, European officials must now find ways to engage with Chinese counterparts on fostering greater regional diplomacy in the Persian Gulf. 

There are reports that a regional summit will take place in Beijing later this year, involving all GCC states, Iran and Iraq. This is an important opportunity for multilateral dialogue and cooperation. European governments should consult with regional players and China to secure a seat at the meeting. The EU can help regional countries find ways to jointly tackle basic issues that have impeded economic growth which have resulted in spillover effects such as increased food insecurity and inability to mitigate the rising challenges of climate change.

In parallel, the Baghdad Conference could emerge as an EU-backed platform for economic cooperation in tandem to the now ongoing political and security dialogue process in China. The EU can draw in regional countries to help with reconstruction efforts in Iraq, a country that is in dire need of foreign investment. Given the shuttle diplomacy conducted by Iraqi officials between Iran and Saudi Arabia, and considering the role of France and the EU in the Baghdad conference, it would be apt to explore EU-supported joint economic projects in Iraq, especially those projects that create mutual economic interests between Iran and Saudi Arabia.

Whether in Baghdad, Amman, or Beijing, inclusive regional gatherings are needed to address common economic challenges facing all eight countries surrounding the Persian Gulf. Europe can make significant contributions towards regional dialogue on economic integration by helping to create multilateral platforms, transfer knowhow and technology, and provide financial support. These are areas where China has significantly increased its activities, but European countries enjoy far greater experience in establishing the institutions and infrastructure needed for regional economic development. European officials can leverage this experience to support regional diplomacy. Such efforts would also cement European regional influence at a time when US influence may be waning.

The newly appointed EU Special Representative for Gulf Affairs, Luigi Di Maio, should directly oversee and coordinate initiatives in support of economic diplomacy and integration in the region, finding common ground with China to head off competition. Achieving security through stronger diplomacy and deeper economic ties represents a transformative goal that the region can rally around.

Photo: IRNA

Regional Economic Integration Comes into Focus at Second Baghdad Conference

The second meeting of the Baghdad Conference on Cooperation and Partnership took place in Amman, Jordan on December 20. Last year’s meeting in Baghdad initiated a process for multilateralism, dialogue, and cooperation between Iraq and its neighbours, some of whom met for the first time in years. This year’s gathering in Amman cemented the initiative as an annual regional summit and, importantly, added economic integration to the regional agenda.

In August 2021, former Iraqi prime minister, Mustafa Al-Kadhimi, with the support of French president Emmanuel Macron, managed to bring together officials from Egypt, Iran, Jordan, Kuwait, Qatar, Saudi Arabia, Turkey, and the United Arab Emirates, as well as representatives from the European Union, Gulf Cooperation Council (GCC), Arab League, Organisation of Islamic Countries, and the United Nations. This year, in addition to all those who participated in the first conference, the two missing GCC states—Oman and Bahrain—were present as well.

Al-Kadhimi largely succeeded by focusing on foreign policy, particularly as he sought to ease regional tensions. He was instrumental in revitalising relations with Iraq’s neighbours, which had been strained for years. He was also key in kickstarting dialogue between Iran and Saudi Arabia, as well as setting the stage for Iran-Egypt and Iran-Jordan talks. His hosting of the first Baghdad Conference positioned him—and by extension Iraq—as a trusted regional intermediary.

That is why Iraq’s recent transition to a new government was initially met with concern around the region. Mohamed Shia Al-Sudani’s seemingly pro-Iran stance was expected to once again strain Iraq’s ties with its Arab neighbours. There were reports that Saudi Arabia paused negotiations with Iran because of this change of government in Baghdad. But Al-Sudani’s efforts to retain the mantle passed by Al-Kadhimi put regional leaders at ease. He has committed to continuing his predecessor’s efforts to secure regional and international support for the development of Iraq—Baghdad remains in the title of the conference for this reason.

At the conference, Al-Sudani said, “The priority now lies in strengthening the bonds of cooperation and partnership between our countries through interdependence in infrastructure, economic integration and joint investments.” To that end, he argued that regional states should “strive to work together to transform from consuming to manufacturing countries by establishing joint industrial zones that enhance our collective industrial capacity and link the supply chains to one integrated chain capable of competing in global markets and launching mega projects in various sectors.”

By focusing on economic opportunities, Al-Sudani connected the Baghdad Conference to a wider agenda. He was also making an appeal for support from partners beyond the region, such as the European Union. EU High Representative Josep Borrell was present at the gathering in Amman.

In the Joint Communication on a “Strategic Partnership with the Gulf,” which was published in May 2022, the European Union praised the first Baghdad Conference and committed to supporting the region-led process. While France was the only European country supporting the Iraqi initiative initially, the European Union called for a follow-up process to the Baghdad Conference “with EU involvement” and as part of “a structured, EU-facilitated dialogue process”.

In the face of rising competition with other external players, such as China, Russia, and even India and Japan, European countries and the EU are falling behind. But Europeans can make significant contributions towards regional dialogue on economic integration by helping to create multilateral platforms, transfer know-how and technology, and provide financial support. European expertise can help the region find ways to jointly tackle the basic issues that have impeded economic growth and have resulted in spillover effects, such as increased food insecurity and inability to mitigate the rising challenges of climate change.

Establishing a new development fund by using existing instruments and institutions is key. This would mean including sovereign wealth funds, co-investment programmes, economic zones, or multi-party investment initiatives through regional banks or multinational institutions. The Islamic Development Bank, the various state-owned sovereign wealth funds within the GCC, as well as the European Investment Bank, and the European Bank for Reconstruction and Development, have all supported projects that have a multilateral or regional outlook. This could happen through matching funds allocated to the initiative by involved parties.

Through its Global Gateway project, the EU and regional partners could also “explore joint initiatives in third countries through triangular cooperation, financial support, capacity building and technical assistance.” The EU can draw in the regional players to help with reconstruction efforts in Iraq. The Global Europe Instrument foresees projects and investments in Iraq as well. The Instrument aims to fund international cooperation through grants, technical assistance, financial instruments, and budgetary guarantees.

Cooperation in developing a particular port or completing segments of Iraq’s national railway should be the priority. Exploring joint investments in Iraq’s oil and gas industry as well as green energy transition should also be considered.

Dust and sandstorms, as well as drought and water scarcity, are causing huge financial and human costs for Iraq, but also for all neighbouring countries, as well. Key projects that combat shared environmental challenges, which have proven to be the easiest avenue for cooperation, should be explored.

Even though various regional tensions remain, the outlook for regional cooperation and multilateralism seems bright and the Baghdad Conference is helping define a framework for broader regional cooperation, with integration as its aim. As Dutch diplomat Jeanine Hennis-Plasschaert, Special Representative of the Secretary-General for the United Nations Assistance Mission for Iraq, reflected during the meeting, the “demonstration of regional partnership” can now “result in a number of concrete steps.” Hennis-Plasschaert added that these steps “might even lead to a framework for regional integration as an effective means of achieving prosperity, peace and security.”

Photo: King Abdullah Press Office

Dysfunction at the Border Jeopardizes Growth of Iran-Iraq Trade

When the United States re-imposed secondary sanctions on Iran in November 2018, the Rouhani administration belatedly decided that increasing the country’s non-oil exports, particularly to Iran’s regional neighbors, would become a central aim of economic policy.

In 2019, Hossein Modarres Khiyabani, currently the acting industry minister, stated that Iran’s neighboring countries currently import USD 1.2 trillion worth of goods each year, of which Iran accounts for USD 24 billion, equivalent to a 2 percent share. The government aims to grow regional exports to USD 48 billion by the Iranian calendar year ending in March 2022.

Among these countries, Iraq has emerged as Iran’s leading regional trade partner. Iran and Iraq share religious and cultural connections and a border nearly 1,500 kilometers long. But it is Iraq’s large consumer market that makes it ideally suited to play a role in Iran’s non-oil trade agenda. The quality of products produced in Iran is compatible with standards in the Iraqi market, which means a wider range of Iranian producers can target exports to Iraq. This also makes Iraq an arguably more important export destination than China.

While exports to China totaled USD 9.5 billion in the Iranian calendar year ending in March 2020, exports to Iraq were a close second at USD 8.9 billion. Yahya Ale-Es’haq, Chairman of the Iran-Iraq Joint Chamber of Commerce, notes that the composition of trade with China is dominated by raw materials, whereas trade with Iraq includes value-added goods that generate employment in Iran.

“Iran and Iraq set a 5-year target to increase bilateral trade to $20 billion per year in 2018. This has been hampered this year to some extent, partly due to the trade restrictions caused by the COVID-19 outbreak and partly because of Iraq’s reduced purchasing power, a consequence of depleting global oil prices,” Ale-Es’haq told Bourse & Bazaar.

In response to economic pressure at home, Ale-Es’haq explained, Iraq is trying to be more frugal and to address public demands to deal with rampant corruption.

“In reopening Mandali border crossing earlier this month, Iraqi Prime Minister Mustafa Al-Kadhimi said he aims to launch a full-throttle battle against corruption in the borders and customs offices. This is because the central government is not being given its share of customs revenues.”

Officials at the Islamic Republic of Iran Customs Administration (IRICA) describe the Iraqi prime minister’s vow to fight corruption as an internal matter.

“Our customs offices and checkpoints are disciplined and every step and procedure is documented in our electronic system. The Iraqi PM was addressing a matter of national governance as Iraq is a nation made up of different ethnic, religious, tribal and political groups. Each of these have their own regulations and practices which, of course, extend to economic activities of which all groups claim a share,” a spokesperson for IRICA stated.

But Iranian exporters feel that their own government should be doing more to support trade.

Ali Hosseini Sakha is the owner of Nasl-e-Jonoub-e-Karoun Trading Company, based in the southern province of Khuzestan. The company maintains an office in the Iraqi city of Basra. Sakha has been trading in Iraq for over 25 years and last year exported nearly USD 22 million worth of foodstuff, construction material, and minerals across the border.

Sakha also runs a research center under the auspices of the Trade Promotion Organization of Iran, an agency of the Ministry of Industry. He conducts market research and organizes trade forums to try to facilitate greater cooperation and trade on both sides of the border.

“Based on our latest research, the share of Iranian commodities in the Iraqi market amounts to no more than 3 percent. You can hardly find Iranian goods when walking through supermarket aisles in Iraq and that’s a shame,” he said.

Sakha points to a lack of coordination among government agencies. While the government provides a budget to wide range of agencies and to each Iranian province for export promotion activities, the funds are largely squandered on forums and meetings or allocated to those with “special interests.”

Moreover, Sakha explained that Iranian exporters are increasingly reliant on unreliable middlemen in the hopes of getting their products into the Iraq market without having to do the hard work of distribution themselves.

“Iranian exporters take their goods to the border for sale and usually end up making deals with middlemen because that’s how they think they can ‘get ahead in the game.’”

The unregulated middlemen then sell goods on to “the real Iraqi merchants.” Sakha noted that it is not uncommon for middlemen to disappear without having made payment for the goods they have just taken across the border.

He believes that customs officials and the joint Iran-Iraq chamber of commerce could do more to ensure exporters are engaging reliable Iraqi merchants and trading companies. “None of this takes place. The joint chamber is there and has no other business than to serve the interests of certain groups and individuals.”

Sakha’s sentiments were echoed by Hemmat Shahbaz-Beigi, owner of Arshia Gostar Trading Company in Kermanshah province’s Qasr-e-Shirin County. The company exports everything from construction materials, to home appliances, and even vegetables.

Shahbaz-Beigi did not hold back in complaining about the lack of support for Iranian exporters.  

“There are rules and regulations, yet, there is no guarantee that any of them will be executed or applied to your case if you ever come across a problem,” he said.

Shahbaz-Beigi recounted the saga of a USD 200,000 order fulfilled in 2015 than went unpaid. Five years year later, he has spent USD 40,000 in pursuit of payment but “hasn’t gotten a penny back.”  

Shahbaz-Beigi has met with Iran’s consulate general in Iraq but was “not to spend any more on the case and forget about my money altogether.”

He has also been unable to get help from the joint chamber of commerce. “This is just frustrating,” he lamented.

In a recent tweet, Ali Shariati, a board member of the Iran Chamber of Commerce, the nationwide body representing the interests of the country’s private sector, claimed that the Iran-Iraq Joint Chamber of Commerce had been operating without a statute for 16 months and that the chamber no longer comprises of individuals with an interest in developing bilateral trade.

The failure of the joint chamber to support bilateral trade is not unique to the experience of Iranian exporters in Iraq.

“This is how most of our joint chambers are functioning,” explain Farhas Ehteshamzad, former head of Iran Auto Importers Association and a respected figure in business circles. “If these bodies are not made to fulfill their responsibilities towards the private sector, they will not only hamper trade but the members will probably end up monopolizing trade in their areas of interest.”

When asked to comment on the matter, Hamid Hosseini, former general secretary of Iran-Iraq joint chamber and current member, described the complaints of Shariati, Ehteshamzad, and others as “their take on the issue.”

Responding to Shariati’s tweet regarding the join chamber’s statute, Hosseini noted that the statute must be renewed every year during an “assembly with two thirds of the members are present.”

“We have more than 400 members and most of them live in the provinces bordering Iraq. So it’s been hard organizing such an assembly given that we are currently experiencing a pandemic. But we’ve recently been given the permit to hold the assembly online and this will solve the problem,” he explained.

Hosseini added that the joint chamber has an arbitration center with Iraq where disputes are settled, but the problem is that trade between Iranian and Iraqi partners is usually carried out traditionally on the basis of mutual trust rather than robust contracts.

“In such cases, no contracts are signed and there are no documents proving that a commercial interaction has taken place. That’s why these merchants can’t win their cases and the joint chamber should not be made to take the blame for this.”

Despite these challenges, companies committed to export growth can persevere with the right mindset, argued Ali Dorhi, a senior executive at Dina Food Industries, which produces Iran’s beloved “Cheetoz” cheese puffs.

Dorhi believes most Iranian enterprises lack an “export-oriented mindset” and that only “30 percent” of the problems facing Iranian firms eyeing export opportunities can be attributed to bureaucracy and red-tape.

“There is often no market research and trade takes place at the very gates of the borders. Products are not customized or at least adapted a bit to suit the tastes of the destination markets,” Dorhi noted.

“In Iraq, for example, customers demand that product information be written in Arabic on boxes and containers. Many Iranian producers will not meet that request. This is why we end up having an insignificant share of less than 2 percent in Iraq’s lucrative food industry market.”

With oil exports having earned Iran just USD 8.9 billion dollars in the Iranian calendar year that ended in March 2020, the government is finally recognizing the importance of non-oil exports. But what has been neglected, particularly in the case of trade with Iraq, is the need to support exporters with better regulations, better market research, and more responsive trade bodies and chambers of commerce.  

During Al-Khadimi’s recent trip to Iraq, Hassan Rouhani reiterated that Iran and Iraq intend “to expand bilateral trade ties to USD 20 billion”—a figure that reflects the effective doubling of Iranian exports to Iraq. Whether the two countries can reach that lofty goal will depend on whether Iranian authorities and exporters can address the dysfunction at the border.

Photo: IRNA

Iranian Garbage Can Found as U.S. Embassy in Baghdad Stormed

One day after a deadly US airstrike which killed 25 militiamen, members of several Iraqi paramilitary groups aligned with Iran marched on the U.S. embassy in Baghdad, breaching the outer wall of the compound, which is set behind multiple checkpoints in the heavily guarded Green Zone. 

Facing no resistance from Iraq’s security forces, the protestors moved on the embassy, risking further escalation between the United States and Iran days after the death of an American contractor in a rocket attack linked to the Kataib Hezbollah militia. U.S. President Donald Trump warned in a tweet that Iran would “be held fully responsible” for the attack on the U.S. embassy, although he later told reporters that he did not expect a war.

The day’s events produced many surreal scenes, but perhaps none more so than that captured in a video shared widely on social media. The short clip shows a green plastic garbage can, which protestors had recognized as an Iranian-made product. Several men can be heard laughing as they remark on the irony of finding an Iranian garbage can in use behind the walls of the U.S. embassy.

Iraqi protesters inside the US Embassy grounds in Baghdad laugh hysterically about the embassy using an Iranian-made garbage bin.pic.twitter.com/ETrHjrXGlX

— Séamus Malekafzali (@Seamus_Malek) December 31, 2019

The otherwise unremarkable garbage can may offer a metaphor for the senseless contest between the United States and Iran for political and military influence in Iraq. The fact that the U.S. embassy is using Iranian garbage cans serves as a reminder that basic economic logic can still override the competition that has so frustrated the Iraqi people by stymying development and stoking violence.

A logo visible in the video, written in Persian, indicates the garbage can was manufactured by Razak Chemie. The company, also known as Razak Plast, specializes in the production of plastic garbage cans and dumpsters. Based in Tehran, Razak Chemie, exports to a wide range of markets, including Iraq. It is part of Iran’s large and well-developed manufacturing base, which converts the country’s natural resources—in this case the petrochemical derivatives of oil production—into higher value finished goods.

It is likely that the contractor responsible for sanitation services at the U.S. embassy compound purchased the garbage can from a local wholesaler—perhaps even a local subsidiary of Razak Chemie. A product like a garbage can is exempt from sectoral sanctions on Iran, and Razak Chemie is not a sanctioned entity. It may not have occurred to anyone to check the origin of the garbage can—certainly no one would have anticipated the garbage can would feature in a video shot by Kataib Hezbollah members behind the embassy walls.

Economically speaking, it makes perfect sense that the U.S. embassy in Baghdad would use Iranian garbage cans, potentially in addition to other Iranian products. As one of Iraq’s largest trading partners and—along with Turkey—the neighbor with the largest manufacturing base, Iran is an obvious supplier for a wide range of consumer and industrial goods.

Sure, the contractor at the U.S. embassy could have sourced the same kind of garbage cans from China. But it is likely that Razak Chemie’s products were simply more affordable and more readily available than those from other companies and countries.

A Chinese-made garbage can sold in Iraq would have traveled a long way. It would also have been produced with plastic pellets imported from abroad—very possibly from Iran itself. Between January and November 2019, China imported USD 2.3 billion of plastics from Iran, a category which includes the raw materials necessary for injection molding of industrial garbage cans. Given Razak Chemie can source key raw materials domestically and can get its products to Baghdad via a simple 11-hour journey by truck, cost-competitiveness is to be expected.

A similar business case applies to a wide range of Iranian manufactured goods now exported to Iraq. Last year, Iran-Iraq bilateral trade amounted to USD 12 billion. When Iranian President Hassan Rouhani visited Baghdad in April 2019, he announced an ambitious goal to grow that figure to USD 20 billion by 2021. By comparison, in 2018, U.S.-Iraq bilateral trade was just over USD 13 billion. However, of that amount nearly USD 12 billion was exports of Iraqi crude oil to the United States. In short, the U.S. is not selling basic products like garbage cans to Iraq—and those products, when not manufactured domestically in Iraq, are frequently sourced from Iran over other global suppliers.

Whatever vision policymakers in Washington may have for economic development in Iraq, it will require the respect for Iraq’s deep economic ties with Iran and the utility of those ties. Of course, in the interests of Iraq’s economic sovereignty and development, these ties ought to be based on fair competition and comparative advantages. Ideally, more of Iraq’s consumables will one day be made domestically, but perhaps it will be through joint ventures in which an experienced firms like Razak invest in Iraqi manufacturing. Already, several major Iranian companies have established local manufacturing plants in Iraq, contributing much-needed foreign direct investment and transferring technological knowhow while also creating jobs.

Iran-backed militias may have made it behind the walls of the U.S. embassy, but Razak Chemie’s garbage can made it there first—unthreateningly and usefully. The United States can no more expect to excise Iranian commercial activity from the Iraqi economy than it can expect to end German commercial activity in Poland—economic development necessitates regional integration.

Photo: Razak Plast

With Focus on Economic Relations, Iran-Iraq Ties Move Into the 'Daylight'

Expectations were high when Iranian president Hassan Rouhani visited neighboring Iraq last month. During the trip, his first as president, Rouhani signed multiple trade deals with Iraq, where the return of peace and stability has renewed the government’s focus on economic development. The deals covered a variety of sectors including railway construction, electricity infrastructure, and engineering services.

Today, the volume of annual bilateral trade between Iran and Iraq stands at around USD 12 billion. But Rouhani has targeted ambitious growth, saying the two sides should aim to reach USD 20 billion in trade.

The deputy governor-general of Iran's southeastern Khuzestan province—close to the Iraqi border—said Rouhani's trip prepared the ground for the growth of trade in the Arvand Free Economic Zone. Agreements to complete a railway link connecting the southwestern Iranian town of Shalamcheh to the Iraqi Port of Basra and the decision to eliminate visa fees for travelers were among the most notable achievements of the trip. The tourism sector is booming as Iraqis find it increasingly appealing to visit cities in Iran’s west as well as the northeastern holy city of Mashhad, a popular destination for Iraq's Shiite pilgrims. Iranian pilgrims also travel to Iraq in huge numbers, visiting shrines in Najaf and Karbala.

Any planned growth in bilateral trade will depend on Iran and Iraq addressing a range of financial disagreements, exacerbated in part by US secondary sanctions. Since the reimposition of sanctions by the Trump administration in November, complaints have grown among Iranian stakeholders—including oil minister Bijan Zanganeh—that Badghad was effectively siding with Washington given non-payment of rising debts. Prior to Rouhani’s visit, Iran’s central bank governor, Abdolnasser Hemmati, traveled to Baghdad for technical meetings and secured commitments that Iraq would pay significant arrears related to the import of Iranian natural gas and electricity. A few weeks later, Rouhani told his Iraqi counterpart, Barham Salih that using national currencies in banking transactions would help protect bilateral trade from sanctions pressures.

Just last week, Rouhani stressed in a phone conversation with Iraqi Prime Minister Adil Abdul-Mahdi that an agreement to dredge the Arvand River—signed during his visit to Baghdad—was being implemented. Rouhani was speaking in the context of recent deadly floods that have left behind a trail of death and destruction in several Iranian provinces. During the phone call, Iraqi Prime Minister Adel Abdul-Mahdi noted that Iraqis have warmly welcomed proposals that would see a greater presence of Iranian firms in their country.

For its part, the Iraqi government has sought to reassure Iran of its commitment to expanded economic ties with Iran, despite Iraq’s continued reliance on security and economic support from the US. "Iraq insists that the interests of our friendly and neighboring country must be met. We will do our best to reduce tensions in this regard and decrease the damage that will be done to the Iranian nation," declared President Salih.

Overall, Rouhani’s visit won praise across Iran’s political landscape. Hardline newspaper Kayhan, usually highly critical of the Rouhani administration, described the president’s visit as “an act of resistance” to US pressure, which served to “provide relief to the economy.” Financial newspaper Donya-e-Eqtesad, similarly highlighted “Tehran's message to Washington from within Baghdad.”

Iranian media also took pride in comparing Rouhani’s visit to the recent visit to Baghdad of US President Donald Trump. Iran’s state television focused on a series of comments Trump made following his return from Iraq, in which he complains about the secretive style of his visit. Trump sneaked into Iraq "in the dark" while Rouhani landed in "broad daylight,” boasted several Iranian papers. The obvious displeasure of US officials at Iraq’s warm welcome of Rouhani also featured in reports about the trip.

Iran’s reinvigorated diplomacy towards Iraq reflects a new diplomatic and economic strategy towards its onetime foe. By placing a greater priority in ties with Iraq, Iran is seeking to both mitigate the impact of US sanctions, while also countering US influence. In some ways, this strategy is a continuation of the tug of war between the US and Iran which began in the aftermath of the US invasion of Iraq in 2003.

For some Iraqis, this contest for influence reflects an unacceptable threat to Iraq’s sovereignty. Even the country's top Shiite cleric Grand Ayatollah Ali al-Sistani raised the matter with Rouhani when the latter visited the holy city of Najaf. The highly revered religious leader stressed Iraq's sovereignty in his meeting with Rouhani, the first Iranian president to have secured such an audience.

Emerging from nearly two decades of conflict, first during the Iraq War and then during the rise of the Islamic State (ISIS), Iraq is now entering a post-war era in which reconstruction will be the foremost political priority. Iran, which played a role in the defeat of ISIS, sees for itself a constructive role in this new phase of Iraq’s development. It remains to be seen to what extent U.S. economic sanctions and political opposition prevent tighter bilateral ties between Iraq and Iran.

Photo Credit: IRNA

Iraq's Top Cleric Joins Game of Thrones

This article was originally published by Bloomberg Opinion.

Ostensibly, Iranian President Hassan Rouhani’s visit to Iraq was meant to deepen economic ties between the two neighbors, historically divided by political and sectarian enmities as much as they are connected by geography. The trip was also meant to demonstrate to the U.S. that Tehran and Baghdad would still do business with each other, despite the Trump administration’s sanctions on Iran.

None of this was especially remarkable: the Islamic Republic’s influence over Iraq has grown exponentially in recent years, underscored by Iran’s control of Shiite militias that have captured much of the state security apparatus and now loom ever larger on the political stage. No Iraqi government, much less one led by Prime Minister Adel Abdul Mahdi, a weak Shia politician, would dare give a representative of the Iranian regime anything less than an effusive welcome.

Only one Iraqi leader could have kept Rouhani at arm’s length: Grand Ayatollah Ali al-Sistani, the country’s most revered cleric. But he didn’t. The audience he gave the Iranian president in the Shia holy city of Najaf says as much about Sistani’s own political adventurism as it does about Iraq’s subservience to Iran.

First, a little background. Sistani, now 88, became a Grand Ayatollah—the highest office in the Shia clergy—during the reign of Saddam Hussein. That he survived the dictator, who ordered the assassination of clerics he disliked, is a testament to Sistani’s studious avoidance of politics. His Friday sermons, often delivered by proxies as he himself aged, made little or no reference to the tyrant’s repression of the Shia.

After a U.S.-led coalition toppled Saddam in 2003, Sistani was able to comment more openly about the way the country was being ruled, criticizing first the American administrators and then the Iraqi governments that followed. But when politicians, keenly aware of his sway over tens of millions of potential voters, sought his endorsement, Sistani demurred. The most he would do is express indirect support for a coalition of Shia parties.

That began to change after the 2014 parliamentary election, which resulted in a hung parliament, followed by frenetic behind-the-scenes jockeying for power by the two-term Prime Minister Nouri al-Maliki and other Shia contenders. A letter from Sistani, calling for the “selection of a new prime minister who has wide national acceptance,” was interpreted as a thumbs-down for Maliki: he was not new, and, having lost control of large parts of the country to ISIS, did not have wide national acceptance.

Four years later, the beneficiary of Sistani’s intervention, Prime Minister Haider al-Abadi, would himself fall at the Grand Ayatollah’s command. After another indecisive election, Sistani opined that politicians in power should not retain their offices. Although Abadi had only been in charge for one term, during which he had overseen the recapture of territory from ISIS, he was weakened by discontent over corruption and shortages of water and electricity: Sistani’s decree doomed him. (Sistani is apparently untroubled by the public offices that Abdul Mahdi has previously held, including two cabinet posts and the vice presidency, none of them with any distinction.)

Throughout, Sistani remained uninterested in Iraq’s external relations. In 2008, when Mahmoud Ahmadinejad became the first Iranian president to visit postwar Iraq, the Grand Ayatollah turned down requests for an audience. Nor did Sistani meet any American president. He did receive Turkey’s President Recep Tayyip Erdogan in 2011.

So why now—and why Rouhani? Grand Ayatollahs tend not to care about quotidian matters such as economic ties, or sanctions. Nor would Sistani feel threatened by Iran’s proxy militias: his personal prestige is so great, they would not dare move against him.

One explanation: By welcoming Rouhani, a relatively moderate cleric, Sistani is sending a message to Iran’s Supreme Leader, Ayatollah Ali Khamenei, a hardliner. That would mark the first time that Sistani has sought to meddle in the politics of a neighboring country—and a traditional enemy, to boot. Doing so is uncharacteristically bold.

To what end, though? Some analysts reckon a blessing from Sistani, who enjoys a wide following in Iran, will strengthen Rouhani’s hand back home. But this is hard to credit: Iranian hardliners have never placed much store by outside clerics, even one so venerable as Sistani. Their power derives from the likes of Khamenei, and looks set to be extended by Ebrahim Raisi, the cleric who runs Iran’s judiciary and will have the greatest say in who succeeds the Supreme Leader.      

The other possibility is that Sistani is sending a message to Baghdad—that he is now taking an interest in foreign policy, or at least in Iraqi-Iranian relations. Abdul Mahdi, a reluctant prime minister lacking any political standing, is in no position to object, but many Iraqis will rightly be alarmed. This is especially true of Iraqi Sunnis, many of whom live in fear of the militias backed by the regime Rouhani represents.

The wider Arab world will have noticed that Sistani has never extended the courtesy of an audience to any visiting Arab head of state—whether King Abdullah of Jordan, the Emir of Kuwait, or the presidents of Tunisia, Lebanon and Libya. Dabbling in foreign affairs, the Grand Ayatollah may find, can be a lot trickier than domestic politics.

Photo Credit: IRNA