Yves here. Even though Simon Watkins is a die-hard Cold Warrior/Atlanticist, he nevertheless has a very good nose for significant developments in the Middle East. It isn’t hard to have noticed that Iraq has been plenty unhappy with the US for years. But even so, being unhappy and acting to distance yourself in a serious way from the cause are two different matters. While not headline-garnering, this Iraq-Iran agreement is yet another black eye for the US.
By Simon Watkins, a former senior FX trader and salesman, financial journalist, and best-selling author. He was Head of Forex Institutional Sales and Trading for Credit Lyonnais, and later Director of Forex at Bank of Montreal. He was then Head of Weekly Publications and Chief Writer for Business Monitor International, Head of Fuel Oil Products for Platts, and Global Managing Editor of Research for Renaissance Capital in Moscow. Originally published at OilPrice.com
- Iraq has always been well-aware of Washington’s strategy and has been keen to play along.
- Despite promises to stop importing Iranian gas, the Iraqi government has continued to receive financial support from Washington while extending its gas deals with Tehran.
- The sheer length of Iraq’s new gas deal with Iran means Baghdad can be under no illusion that Washington will regard it as a serious political statement of intent.
Given its huge oil and gas reserves, strategically critical location in the heart of the Middle East, and its initial welcoming of the U.S. after the fall of President Saddam Hussein in 2003, Iraq has long been at the top of Washington’s list of countries in the region with which it wants a deeper working relationship. In many ways, the U.S.’s end of combat mission in the country on 31 December 2021 was regarding by the White House as a temporary tactical retreat, before a new diplomacy-led relationship could be forged. Washington’s long-running financial aid to Iraq would be used as the basis for this diplomatic renaissance, which could be gradually leveraged into a weakening of the bond Iraq has with Iran – and by association, therefore, with China and Russia too. A good starting point for this, the U.S. believed, would be the substitution of Iranian gas used by Iraq to keep its power grid going with supplies from elsewhere. Iraq has always been well-aware of Washington’s strategy and has been keen to play along, offering scraps of hope at regular intervals – the occasional engineering award to a U.S. firm, being a favourite – in exchange for hundreds of billions of dollars given it as a reward. Given this long-running game of bluff and double-bluff, it is exceptionally interesting to see that Iraq has now apparently thrown all caution to the wind and signed its longest ever deal with Iran to keep supplying it with gas for the next five years. So, what does it all mean for the U.S.?
The sheer length of Iraq’s new gas deal with Iran means Baghdad can be under no illusion that Washington will regard it as a serious political statement of intent. It may also see it as a significant betrayal of assurances repeatedly given by all the recent leaders of Iraq that in exchange for U.S. funding to help in this process, the country will move away from its dependence on Iran, in the first instance by reducing its imports of gas eventually to nothing. Baghdad knows perfectly well that the White House sees these ongoing gas imports by Iraq as a key means of funding for Iran. Only last week, Iran’s Deputy Oil Minister (and managing director of the National Iranian Gas Company), Majid Chegeni, stated that his country has earned US$15 billion from exporting around 52 billion cubic metres (bcm) of gas to Iraq since 2017. Baghdad also knows that Washington sees Iraq’s close cooperation with Iran on the two countries’ shared oil fields as the primary method in which Iran has been able to keep its economy intact over the years despite sanctions, as analysed in depth in my new book on the new global oil market order. There are many shared fields between the two countries, but the most notable ones are Azadegan (on the Iran side)/Majnoon (on the Iraq side), Azar (Iran)/Badra (Iraq), Yadavaran (Iran)/Sinbad (Iraq), Naft Shahr (Iran)/Naft Khana (Iraq), Dehloran (Iran)/Abu Ghurab (Iraq), West Paydar (Iran)/Fakka/Fauqa (Iraq), and Arvand (Iran)/South Abu Ghurab (Iraq). The oil on the non-sanctioned Iraqi side of the border is often drilled from the same reservoirs as the oil drilled on the sanctioned Iranian side, sometimes even through long-distance horizontal directional drilling. Even if the Americans, Europeans, or any of their most trusted appointees stationed people at every single rig in every single shared field in Iraq they would not be able to tell if the oil coming out it was from the Iraq side or the Iranian side. So this has allowed for decades Iranian oil simply to be rebranded at source as Iraqi oil and shipped to wherever is required in the world.
Up until now, the most shocking betrayal of the U.S.’s optimistic trust in Iraq in this context came from the ultra-smooth former Iraqi Prime Minister, Mustafa al-Kadhimi. He had danced the usual dance with the U.S. so well that in May 2020 Washington gave him even more money than before and the longest waiver ever given – 120 days – to keep importing gas from Iran, on the standard condition that Iraq stopped doing it soon. However, once the money had been banked and al-Kadhimi was safely back on home territory, Iraq signed a two-year contract – the longest period ever at that point – with Iran to keep importing gas from it. Washington then let the formidable then-State Department spokeswoman, Morgan Ortagus, out of her room, and she let fly. Not only was the next waiver to Iraq the shortest ever – 30 days – but also at the press conference in which it was announced, Ortagus let it be known that the U.S. was hitting 20 Iran- and Iraq-based entities with swingeing new sanctions. She cited them as being instruments in the funnelling of money to Iran’s Islamic Revolutionary Guards Corps’ (IRGC) elite Quds Force, which was entirely true. She added that the 20 entities were continuing to exploit Iraq’s dependence on Iran as an electricity and gas source by smuggling Iranian petroleum through the Iraqi port of Umm Qasr and money laundering through Iraqi front companies, which was also true. She also said that Washington was extremely concerned that Iraq was continuing to act as a conduit for Iranian oil and gas supplies to make their way out into the world’s major export markets. This was true as well, as additionally analysed in my new book on the new global oil market order.
Knowing these things, Iraq appears with its latest five-year gas import deal with Iran to have finally closed the door on Washington’s diplomatic advances. It would not have done so without further assurances from Iran (and China and Russia) that its interests would be safeguarded in a stronger alliance with them. For the most important of these – China – Iraq and Iran represent a giant oil and gas station for it in the Middle East, which it can also use for geopolitical pressure purposes against the U.S. In Iran’s case, China has been successful so far into effecting this transformation from it as sovereign state into a Middle Eastern equivalent of Hong Kong (a Special Administrative Region of China) through the all-encompassing ‘Iran-China 25-Year Comprehensive Cooperation Agreement’ , as first revealed anywhere in the world in my 3 September 2019 article on the subject and analysed in full in my new book on the new global oil market order. China is using the same sort of arrangement for Iraq, as evidenced in the equally all-encompassing ‘Iraq-China Framework Agreement’ of 2021. This in turn, was an extension in scale and scope of the ‘Oil for Reconstruction and Investment’ agreement signed by Baghdad and Beijing in September 2019, which allowed Chinese firms to invest in infrastructure projects in Iraq in exchange for oil.
Following this, Iraq approved nearly IQD1 trillion (US$700 million) for infrastructure projects in the city of Al-Zubair in the southern Iraq oil hub of Basra. The Al-Zubair announcement came around the same time as the awarding by Baghdad of another major contract to another Chinese company to build a civilian airport to replace the military base in Nasiriyah – the capital of the oil-rich DhiQar Province. This airport project, China announced, would include the construction of multiple cargo buildings and roads linking the airport to the city’s town centre and separately to other key oil areas in southern Iraq, which it now controls. In the later discussions involved in the 2021 ‘Iraq-China Framework Agreement’, it was decided unanimously by both sides that the airport could be expanded later to be a dual-use civilian and military airport. The military component would be usable by China without first having to consult with whatever Iraqi government was in power at the time, a senior source who works closely with Iraq’s Oil Ministry exclusively told OilPrice.com at the time.
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Me and my brother against my uncle; me, my brother and my uncle against the outsider …
‘A good starting point for this, the U.S. believed, would be the substitution of Iranian gas used by Iraq to keep its power grid going with supplies from elsewhere.’
That may have been the plan but then the NS2 pipeline blew itself up which meant that all those EU nations were running around buying up all the gas that they could and sending the price through the roof. Washington thinks that they can just simply exercise control over Iraq but what is forgotten by them is that they share a 1,599 km (994 mile) border with Iran – plus a coupla thousand years of history. I suspect that Russia, China and Iran want to bring Iraq into the fold and by coincidence, all of those three nations are BRICS nations. So maybe in the years to come Iraq will enter the BRICS. Of course Iraqi and Iranian security forces will have to closely guard those pipelines just in case “ISIS” saboteurs try to blow it up. Or maybe from the crew of the Andromeda or even the SS Minnow. Naturally the US has been hitting Iraq with sanctions because that is what you do when you don’t know how to do diplomacy. if Iraq makes the right moves, then perhaps in the years to come it will be able to give its people a high standard of living after so many decades of adversity.
Gotta wonder what our dear General Weasley Clark might have to say about all this. Now that the mysterious dust has settled over the Gulf States. Can Syria be far behind? And imagination intrudes on unconnected facts when it comes to the casual attitude of the Middle East to all the horrendous genocide in Gaza. It almost looks looks like the grand bargain. It certainly smells like it.
The Golden Rule according to Americans:
He who has the gold, makes the rule. It’s not personal, it’s business.
Those waiting for karma have no clue how bad it will be
I believe the US still holds almost all of Iraq’s oil revenues in the New York Fed and the Iraqi government still need to constantly ask the US government permission to use its own money. I couldn’t quickly find anything to validate this but it did come up in a recent Dimitri Lascaris interview of an Iraqi BRI advocate. I imagine that this deal may be one way to bypass this system.
Here’s something from 2023 describing the situation.
https://twitter.com/HusseinAskary/status/1670798222439088132
According to the UN Security Council resolution 1956 in December 2010 Iraq gained full sovereignty over the oil revenues in early 2011.
From the above twitter thread:
“In December 2010, the UNSC terminated the Resolution 1483 and the DFI with Resolution 1956 upon the request of the Iraqi Prime Minister. But that was too late, because the U.S. kept its illegal grip over Iraqi revenues. No Iraqi government tried to challenge this U.S. control.”
Given that China still has (I assume) at least $2.5T of US Treasury holdings and if the West seizes Russia’s assets it is more likely than not that China’s sovereign assets held in the West will be confiscated at some point, using $100b of that give Iraq a viable path to exiting US dominance would be a great investment. That said, US sanctions on future oil and gas sales would continue to be an issue.
“I believe the US still holds almost all of Iraq’s oil revenues in the New York Fed and the Iraqi government still need to constantly ask the US government permission to use its own money….”
Killers of the Iraqi Moon…the Iraqis as the Osage.
The Iraqis as the Osage.
Yes, this is correct.
This is also the part that empire apologists forget to mention when they talk about how the Iraqi Parliament and government did not vote a binding resolution to eject US forces.
Maybe the access to its own money is being considered by the autor of the article as the billions in reward: “– in exchange for hundreds of billions of dollars given it as a reward”
Iraq welcomed the US after the fall of Saddam Husain? That’s a hot one.
Also the “in exchange for the hundreds of billions of dollars given it as a reward”
I got the impression the USA expenditure ended up flowing back to USA groups not to Iraqi betterment.
Is there any documention of this “reward”?
Glad I wasn’t the only one to notice that. If Yves hadn’t insisted it was worth reading I’d have quit there.
Still the article presents another sign of US’s diminishing influence.
To expect that Iraq would choose to work with the US after what we did ( destroy the country) and didn’t do ( fix and upgrade it) is a sign of, I don’t even know how to describe it. Insane comes to mind. And I’m sure others will have better words.
And the response with immediate sanctions is what I have come to expect at this point, and another reason that why would you chose to side with the US?
Especially when you have China basically next door on the belt and road who actually make stuff they want and need, good quality and good prices.
The US still operates like it’s 1991.
As Emma notes, the US holds Iraqi oil revenues hostage. For its own good, see?
And if the Iraqs decide to work with BRICs, and not work with the US based financial system.
Does that get them out from the financial hostage?
No, it means that they no longer get access to their own money.
Aside from the air-conditioned Iraqi people, General Electric and Siemens are the winners here. It is their partnership with Iraqi electric companies which run on Iranian natural gas that benefits from this deal. There is idle capacity in Iraq’s electric sector because sanctions hinder Iraqi payments to Iran for natural gas with which it generates power. In fact, US influence has kept would-be Iran-bound funds in Iraqi banks because sanctions only allow for a trickle of US-approved payments to Iran.
This barter deal of Iraqi crude instead of currency, benefits US and Europe interests. Because Iran still severely lags in refining capacity as sanctions prevent technological upgrades and investment. That Iraqi crude is just going to sit next to the Iranian crude that Iran is forced to export, instead of refined products, because Iran’s refineries are just dismal. And now Iraq has more refining capacity because it uses Iranian gas to process all the hydrocarbons of the rainbow.
Of course, Simon Watkins is perhaps being playful here. It wasn’t that long ago when Watkins was calling the above proposal “omni-toxic”. Now that the hypothetical is reality, Watkins still has to tarnish something to get paid. Pessimistic books don’t self-publish themselves.
I may not have made it clear enough in my intro, but I find that Watkins often does latch on important or at least potentially important developments. But what he makes of them is another matter.
Given that the US invaded Iraq in 2003 based on a lie (Weapons of Mass Destruction) and before that, waged a brutal campaign bombing Iraq’s infrastructure / sanctions war, it has no moral authority not right to think it is somehow entitled to Iraq’s natural resources.
You can tell the author is desperate to keep US hegemony. This development was inevitable. Iraq is a predominantly Shi’a Islam nation and given that China is rising, it makes sense to align with China and Iran more closely.
What can the US offer that the Chinese or Iran cannot? How would a deal like this benefit the Iraqi people? I don’t see a satisfactory answer from the Simon Watkins, who based on the tone of his article, seems entitled to Iraq’s oil in a rather imperialistic manner.
Moral authority has nothing to do with it, any more than an armed robber claims any moral authority to tie you up, pistol-whip you and stake off with your stuff.
This is strictly about power. I wish it wasn’t, it is not pleasant, but that is how relations in the real world currently are structured and pretending that things were otherwise will not change it.
Even prior to the invasion of Iraq, there was a base of people in America saying that the invasion would ultimately benefit Iran and the countries would end up aligned. This was not hard to see at that time. But 9/11 blood lust overruled common sense real geopolitics.
But the rise of China, Russia et al (BRICS) has made it easier for every nation that has been on the receiving end of America’s belligerence to decide to align with the BRICS. I remain amazed that the US “experts” have not realized that we’re over a tipping point and the world has changed.
Iran and Iraq becoming Hong Kong …
Geez I can’t stand this guy
From my limited understanding, dollars that Iraq gets for oil are controlled by NY Fed, and that allows to control how they are spend. But if Iraq sells for yuans, then those accounts are not controlled by Fed, and a tug of war starts. Of course, USA is very obnoxious with this colonial dependency, e.g. Iran natural gas is presumably cheaper and more reliable, Qatar has markets of its own etc.
It’s a pity the ungrateful natives can’t be more deferential after we “shock and awed” them into submission and brought “freedom and democracy”.
Our British colleagues tried to convince the Iraqis a century ago, but they just don’t learn. Perhaps they need another lesson?
https://en.wikipedia.org/wiki/RAF_Iraq_Command
One irony is that we did stand up a democratic system in Iraq. That was actually the problem as far as the Sunni Gulf petro-states were concerned, since Iraq was majority Shia. Every Iraqi govt since 2005 has been Shia led.
The amazing thing is that Rumsfeld and Cheney trusted Chalabi that Iraqi Shia would align with the US and not Iran. Maybe Chalabi was Curveball, too. What a catastrophic mistake and one that we’re not through paying for – if the Middle East yet explodes in war from Sinai to Iran we’ll see the Sunni-Shia fault line be at the front of it. Think Iraq-Iran war x 10.
And where does all that gas and oil end up? Same as all the other gas and oil . . . into the engines and turbines, out the stack and up into the sky.