What’s The West Up To In Its Talks With Iraq Over Building Out An LNG Sector?

There is a lot more than meets the eye to a series of meetings by U.S. and European firms recently to talk to Iraq’s leadership about opportunities in the liquefied natural gas (LNG) sector. Since Russia invaded Ukraine in 2022, LNG has become the world’s emergency energy source, as unlike pipelined gas or oil, it can be secured and shipped very quickly to wherever it is needed. Iraq does not have an LNG sector to speak of, but it is now planning to build

its first LNG import terminal at Khor Al-Zubair port, with a second offshore LNG terminal also now planned for Faw port. In recent months, several major Western oil and gas firms with top-flight LNG capabilities – including ExxonMobil, Chevron, Shell, BP, and TotalEnergies, among others – have either re-established or expanded their presence in Iraq. And just over a week ago, Iraq invited U.S. firm Excelerate — the global leader in LNG floating storage and regasification units and downstream LNG infrastructure — to take a key role in developing these LNG import terminals. So, what is the U.S. and Europe really up to here?

One part of the answer in the zero-sum game of global fossil fuel demand and supply is that they want to further marginalise Iran. The Islamic Republic has long held a strong grip over Iraq through its political, economic, and military networks, as seen for example in its continued supply of gas and electricity to its neighbour. Up to 40% of Iraq’s power supplies have come from Iraq over the years, with the trade-off being that Iran can use Iraq’s oil sector as a mechanism to avoid international sanctions. This is done very simply in the first instance by rebranding (non-sanctioned) Iraqi oil as (sanctioned) Iranian oil by dint of the fact that much of Iran and Iraq’s oil is drilled from the same reservoirs, albeit from different-named fields on either side of the border. These shared fields include Iran’s Azadegan (the same reservoir as Iraq’s huge Majnoon site), Yadavaran (Iraq’s Sinbad), Azar (Iraq’s Badra), Naft Shahr (Iraq’s Naft Khana), Dehloran (Iraq’s Abu Ghurab), West Paydar (Iraq’s Fakka), and Arvand (Iraq’s South Abu Ghurab). Once re-branded, Iran’s oil can then be moved to anywhere in the world through various methods analysed in depth in my latest book on the new global oil market order. This long-running critical enabling by Iraq of Iran’s crucial gas and oil income flows has been the foundation stone for the survival of the current Iranian regime.

Washington has increased pressure against this collaboration since Donald Trump’s re-election as president by increasing sanctions on Iraq. However, as now seems to be the very clear international relationship template emerging in his second term — alongside the threat is a reward on offer too, although this comes with its own caveat. To begin with, having funnelled vast amounts of U.S. oil and gas firm investment into Iraq – with several U.K. firms and France’s TotalEnergies too – Washington put itself in a prime position to build the key infrastructure related to the primary emergency energy source in the world currently, LNG. It has also put itself in the best position to be the major supplier of LNG into the terminals that its firms are building. It is no secret that Trump wants a trade-off for the U.S. in such situations, with a notable one being the importation of more American gas and/or oil by the countries in receipt of such investment largesse. This is the same concept that he has indirectly – but directly enough to be noticed and acted upon — promulgated with Europe. To wit, having said that the U.S. might not stand by the NATO Article 5 commitment for members that do not increase their defence spending, he then added that the continent should substitute ongoing supplies of gas and oil from Russia with those from the U.S. The result was the July pledge by the European Union to buy US$750bn worth of U.S. energy in the next three years. That said, fossil fuel deals bring with them a greater benefit than just the income made by the supplier. Specifically, it brings with it extensive legal rights for the foreign companies operating such gas and oil developments on the ground. Most notably, such firms are entitled to protect these sites with their own security staff to whatever number they think is required, provided this is accepted by the host country. These firms can also build out support infrastructure, again with government acceptance, including transport routes and telecommunications structures.

The U.S.’s endgame in this LNG strategy is not just to boost its own supplies into Iraq and its own geopolitical influence there, nor simply to marginalise Iran’s hold over its neighbour, but it is also to reduce China and Russia’s influence in Iraq. For Russia again, part of this is related to Washington’s strategy to keep reducing its ability to fight wars, including the one in Ukraine, by cutting off its financing from gas and oil sales, especially LNG in the short term. Russian President Vladimir Putin has long seen LNG – particularly from the country’s huge gas resources in the Arctic – as the key to Russia’s next major phase of energy growth, in a similar way to the way shale oil and gas have been for the U.S. The Russian Arctic sector comprises over 35,700 billion cubic metres of natural gas and over 2,300 million metric tons of oil and condensate, the majority of which are in the Yamal and Gydan peninsulas, lying on the south side of the Kara Sea. According to comments by Putin, the next few years will witness a dramatic expansion in the extraction of these Arctic resources, and a corollary build-out of the geopolitically strategic Northern Sea Route. Moscow also has extensive oil and gas development and exploration interests across Iraq, which provide it with oil recovered at the joint lowest cost in the world (along with that from Iran and Saudi Arabia) at US$1.3 per barrel.

Given this, the U.S. has specifically been targeting Russia’s huge LNG industry since its 2022 invasion of Ukraine, as it was an early beneficiary of the war in this regard and remains so to this day. Moscow has also played a major role in the ongoing schism running through Iraq between its Federal Government based in the south, and the government of the semi-autonomous region of Kurdistan in the north, as also analysed in depth in my latest book on the new global oil market order. Up until Trump secured a second term as president, the broad geopolitical stance of the Federal Government of Iraq aligned perfectly with that of its key sponsors, China and Russia. This was relayed to OilPrice.com some time ago by a senior energy source who works closely with Iran’s Petroleum Ministry: “By keeping the West out of energy deals in Iraq, the end of Western hegemony in the Middle East will become the decisive chapter in the West’s final demise.” On the other hand, the Kurdistan Region of Iraq’s view equally reflected those of its principal sponsors – the U.S. and its key allies. This is that they want the Kurdistan Region to terminate all links with Chinese, Russian and Iranian companies connected to the Islamic Revolutionary Guards Corps over the long term. The U.S. and Israel also have a further strategic interest in utilising the Kurdistan Region as a base for ongoing monitoring operations against Iran.

By Simon Watkins for Oilprice.com

What’s The West Up To In Its Talks With Iraq Over Building Out An LNG Sector?

Tags: