Iraq can import energy from Iran, US says

The US administration says Iraqi imports of natural gas and electricity from Iran will not be subject to sanctions designed to pressure Tehran's government.

Washington at the same time is pushing Baghdad to resolve a dispute with the Kurdistan Regional Government (KRG) over northern Iraqi oil fields that would provide an alternative to Iranian crude.

Secretary of state Mike Pompeo gave Iraq a 45-day waiver to continue importing natural gas and electricity from Iran because of the humanitarian conditions in the southern Iraq's Basrah province, deputy assistant secretary of state Andrew Peek said today. The waiver reflects the fact that "Iraq has to import some electricity and gas from Iran to meet its domestic generation, some 1,200MW," Peek said at a discussion hosted by Washington-based Arab Gulf States Institute.

As of June, Iraq has been importing about 425mn cf/d (12mn m³/d) of natural gas from Iran, in addition to electricity. Neither commodity is subject to sanctions, but payment for the supplies involves arrangements that could have been affected without an assurance from Washington.

Baghdad asked for a US exemption on a crude swap deal that involves state-owned marketing company Somo export crude from Kirkuk to Iran. Iraq said earlier this year it trucked crude to Iran for payment of arrears for Iranian gas supplies in the past. Officials at Somo say Iraq has frozen crude exports to Iran from Kirkuk while Baghdad waited for news on the exemption, although trucking and logistical issues already have limited crude exports on this route. Somo officials say they could restart exports from Kirkuk through a KRG-operated pipeline, but that discussions are ongoing.

Iran has denied that the swap is linked to Iraq's gas debts.

Electricity blackouts and lack of basic services have resulted in massive protests in the Basrah province, sparking concerns over the stability of production in that region of Iraq. US officials have lobbied Kuwait and Saudi Arabia to supplant Iranian gas supplies by sending fuel oil to Iraqi power plants. The US administration has also pushed to resolve the dispute over the fields in Kirkuk that the federal government retook from the Kurdish autonomy in October 2017. Crude from those fields has effectively been trapped since then.

"We are deeply involved in trying to find a solution on Kirkuk oil," Peek said, with another round of talks scheduled in Iraq next week. Resolving the issue would allow Iraq to export an additional 200,000 b/d, State Department special envoy on Iran, Brian Hook, said. Washington also has urged Saudi Arabia and Kuwait to restart production in their shared Neutral Zone, which US officials say could add 250,000-300,000 b/d to global capacity.

"As more barrels of Iranian crude come off the market, we will be finding alternatives," Hook said. "We are highly confident that we will be able to substitute Iranian crude for other crude oil producers have all increased their production: the US, Iraq, Saudi Arabia, Russia."

US sanctions on Iran's oil sector went into effect yesterday. The US has issued exemptions for China, Greece, India, Italy, Japan, South Korea, Taiwan and Turkey to continue buying Iranian oil for the next six months.

The State Department said no additional exemptions would be necessary as buyers cut back imports from Iran. "Our goal remains getting countries to zero imports of Iranian oil," Hook said.

But Japan said today it would continue discussions of additional waivers. Japanese oil firms are now expected to resume imports of Iranian crude after temporarily halting loadings from mid-September.

"We will ensure, as more barrels of Iranian crude and condensate come off the market, that we accomplish our national security objectives without increasing the price of oil and we have a high degree of confidence that we will be able to achieve both," Hook said.

The State Department has cited reports published by the IEA and the US Energy Information Administration (EIA) in making the assessment that the oil market will be sufficiently supplied through next year despite sanctions on Iran.

The EIA, in its Short-Term Energy Outlook released today, expects world liquid fuels production to exceed consumption through mid-2019. It also projects Opec spare capacity at 1.21mn b/d in 2019, about half of the average level for the preceding decade.