Iraq and Iran suffer conjoined electricity crisis amid summer heat

Baghdad had hoped imports of Iranian gas would ease its power crisis – but the countries’ deteriorating economies have created the perfect storm

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A disastrous collapse in Iraqi and Iranian electricity supplies was partly caused by the dysfunctional partnership between the countries’ energy sectors, analysts have told The National.

Years of underinvestment and mismanagement, as well as Tehran’s spending on its nuclear programme at the expense of vital civilian infrastructure, help explain why both countries are sweltering without power in temperatures as high as 50°C.

For years, Iraq has struggled to generate enough power to meet basic needs. To help bridge some of the gap between production and demand, it has been importing up to 70 million cubic metres a day of gas and 1.5 gigawatts of electricity from Iran.

But it has struggled to pay its bills since early 2018.

Iraq's Prime Minister Mustafa Al Kadhimi told Iranian media on Monday his country was making progress in settling its dues.

But Iran, too, is struggling to supply the agreed amounts of gas and electricity as its own energy demand surges.

Nuclear ambitions trump infrastructure spending

One of the major reasons behind Iran’s struggle to provide power, say experts, is its focus on nuclear enrichment. This led to international sanctions for much of the 2000s until the landmark 2015 nuclear agreement with world powers.

“Tehran’s decisions are not made on ‘rational self-interest,’ but ideology and strategic objectives,” said Nicholas Krohley, a regional risk analyst and a fellow at the Modern War Institute in the US.

“The pursuit of a nuclear programme has crippled their economy. Yet they persist."

Estimates of the total cost of Iran’s nuclear project to date vary, but Iranian officials say it ranges from $7 billion to $30 billion.

That does not take into account the hundreds of billions of dollars lost to the resulting international sanctions.

An Iranian worker pulls a cart next to closed shops around the Tehran's old grand bazaar in Tehran, Iran, 05 July 2021. EPA

US President Donald Trump walked out on the nuclear deal in 2018, citing Iranian non-compliance with the strict limits on enriched materials and compulsory inspection of nuclear sites, which Washington said were used for weapons development.

The United States and Europe are now engaged in negotiations to restore the 2015 nuclear deal.

Cash-strapped Iran probably needs tens of billions of dollars in investment to maintain its output at gas fields across the country, but lost an estimated $70bn owing to sanctions imposed by the Trump administration.

Former Iranian President Hassan Rouhani has said this sum is far higher, $150bn.

Iran and Iraq’s ‘dysfunctional partnership’ over power

As Iran’s gas investment needs mounted amid a lack of funds, Iraq’s financial situation deteriorated.

From 2017, Iraq paid for Iranian gas and electricity imports by exporting its own oil. But when prices crashed and its revenue dropped during the 2014-18 war against ISIS, it couldn’t meet the payments.

By early 2021 Baghdad already owed $6bn, jeopardising the viability of more exports. That is a substantial problem: in the summer months, Iraq needs about 30GW but barely manages 20GWs of production.

Electricity projects in Iraq, including strengthening a decrepit national grid, have been delayed by years of conflict and mismanagement.

Iraq had been running some of its largest power stations – including the 3-gigawatt Bismaya plant, which is vital for Baghdad, on Iranian gas.

Last week, Iran cut exports, leaving its neighbour struggling to produce 8 GW and causing long, uninterrupted blackouts in many places.

Paying the energy bill was previously complicated by US sanctions aimed at stopping countries and companies from doing business with Tehran.

Iraq was allowed to keep the power agreement only because of short-term and frequently changing waivers put in place by the Trump administration.

Baghdad’s efforts to develop domestic gas production mean it is now generating about half of its electricity from gas capture, according to the International Energy Agency, but there is a long way to go to replace Iranian imports.

“Contrary to what most people think, Iran is struggling with maintaining power stations and building new ones. It is unable to increase gas production as well. So it’s cutting from exports in order to meet the domestic demand. Iran fears a power shortage might backfire and destabilise the regime,” said Harry Istepanian, an energy expert who has worked on projects in Iraq and Kuwait.

In June 2018, energy shortages in Iran led Tehran to briefly cut power exports to Iraq, contributing towards massive protests that erupted around the southern city of Basra calling for reform and an end to corruption.

More worrying for Iraq was when Iran cut exports again in the – usually less power-hungry – winter months of 2019 and 2020.

“Iran supposedly cannot supply the full amount because it needs more of the product domestically,” Iraq’s electricity ministry spokesman Ahmad Moussa said at the time.

Iran previously confirmed this when the National Iranian Gas Company announced that domestic gas consumption had surged, potentially limiting the supply of gas available for export.

Mohammad Ali Shabani, a PhD candidate at London's SOAS university who focuses on post-2003 Iran-Iraq relations, believes the problem is not so much a sanctions-related lack of maintenance.

“Iran has a robust industrial sector with domestic contractors active, even abroad. The core issue is that Iran suffers from a combination of overconsumption, ongoing subsidies and, more recently, a surge in consumption from Bitcoin, which has strained energy supplies.”

Earlier this year, Tehran blamed the energy crisis on miners of digital currencies such as Bitcoin, saying they were using so much power that overheating hardware was causing blackouts and even fires.

“The drought this year, which is impacting several countries, will certainly hit hydroelectric output. Heat will also increase consumption,” Mr Shabani said.

“Already we had reached peak usage in Iran in the past days and it’s barely July. Now we have scheduled shutdowns of power.”

Lifting of sanctions could help, he said, but will not end Iran’s power crisis soon. This leaves millions in both countries with few prospects of escaping a long hot summer.

“It’s a combination of lack of investment and access to technology due to sanctions, very high domestic consumption and drought,” he said.

“It all combines.”

Updated: July 06, 2021, 9:13 AM