Shafaq News/ US President-elect Donald Trump is considering a maximumpressure sanctions campaign on Iraq, OPEC's second-largest oil producer, aspart of efforts to curb Iran's influence, sources familiar with the discussions told S&P Global CommodityInsights.
The proposed measures, which mirror the stringent sanctions alreadyimposed on Iran, could target Iraq’s crude oil production and exports.According to S&P Global Commodity Insights, Iraq produces over 4 millionbarrels per day (b/d) of crude oil, with exports averaging 3.6 millionb/d.
Focus on Iran-Linked Entities
The sanctions may not directly restrict Iraq's oil exports but couldfocus on Iran-aligned entities and individuals, including figures within Iraq’sstate oil marketer SOMO, said Bob McNally, head of the Washington-basedconsultancy Rapidan Energy.
Sources indicate that Iraq’s waivers to import Iranian gas andelectricity could also be revoked. Such a move would exacerbate Iraq’s energycrisis, as the country relies on Iranian imports to offset frequent poweroutages.
“I’ve been advising clients since spring that a Trump 2.0 governmentwould likely target Iraq's increasingly pro-Iranian government for sanctions,”McNally told S&P, though he added that the focus might be limited tospecific actors rather than broad oil export restrictions.
Strained Energy Ties
Iraq's dependency on Iranian energy was highlighted on Nov. 24 when Iranslashed its gas exports to Iraq, cutting supplies from 25 million cubic metersper day to 7 million, resulting in a loss of 5.5 gigawatts of electricity forIraq.
This dependency, coupled with Iran-aligned militias' growing influencein Iraq’s oil sector, has fostered a “gray market” trade in crude oil.According to Commodity Insights, this trade has generated millions of dollarsin illicit revenues for Iranian-backed groups embedded in SOMO and the oilministry.
Implications for Global Markets
Sanctions on Iraq could have widespread repercussions, particularly forChina and India, the largest buyers of Iraqi crude. In October, China accountedfor 41% of Iraq’s seaborne crude exports, while India took 28%, according toCommodity Insights data.
Punitive measures would also complicate Iraq’s efforts to diversify itsexport markets, including expanding sales to Europe and Africa. Iraqi ForeignMinister Fuad Hussein recently highlighted these ambitions but noteduncertainty over how sanctions might affect them.
Domestic and Global Challenges
Iraq’s economy is heavily reliant on oil exports, which generate 95% ofgovernment revenue. In 2022, net oil revenues reached $131 billion. Anysanctions could chill Western investment in Iraq’s energy sector, a criticalcomponent of its plans to increase crude output to 7 million b/d by 2027.
Trump’s potential sanctions could also impact US attempts to counter China’sgrowing influence in Iraq. Chinese firms already operate a significant share ofIraq's oil and gas development projects, far outpacing their Americancounterparts.
Broader Geopolitical Moves
The incoming Trump administration’s stance on Iraq aligns with itshardline approach to China and Iran. In 2018, Trump withdrew the US from theIran nuclear deal, citing Tehran’s support for terrorism and pursuit of nuclearweapons.
In 2011, Trump declared his opposition to leaving Iraq vulnerable to Iraniancontrol, telling The Wall Street Journal, "I would not leave Iraq and letIran take the oil."
The Trump transition team and Iraqi Prime Minister Mohammed Shiaal-Sudani’s office did not immediately respond to requests from S&P forcomment.