Iraq’s electricity crisis: Turning point or tipping point?

Iraq’s electricity crisis has reached a critical juncture, significantly worsened by growing geopolitical tensions and shifting US policy. For years, the country has relied on Iranian electricity and gas imports to meet about 30 percent of its power supply. This arrangement has been sustained through temporary US sanctions waivers, which have allowed the imports to continue despite the broader sanctions regime. However, these exemptions are now ending. In early March, Washington rescinded Iraq’s waiver to purchase Iranian electricity as part of its policy of “maximum pressure” on Tehran and urged Iraq to reduce its reliance on Iranian energy.

Iraq now faces an urgent challenge: to either develop sustainable domestic solutions or deepen its dependency on diesel generators and Iranian gas imports. The latter approach is risky, as Washington has signaled that the remaining exemptions may be revoked. Acknowledging the need for a long-term solution, Iraq has taken significant steps to address its electricity crisis. Reforms to energy infrastructure and policies will be required to ensure Iraq’s energy future is sustainable and secure; otherwise, it will be increasingly vulnerable to supply disruptions and power shortages.

For decades, Iran has been a lifeline for Iraq’s power sector, which struggles to maintain a stable electricity supply due to decades of conflict and persistent mismanagement. The available capacity of the national grid is estimated at less than 28 gigawatts, compared to a peak demand of 48 GW. Iranian energy imports play a vital role in bridging this gap; however, Tehran’s frequent cuts to gas supplies — often due to its own domestic shortages or political motivations, particularly following the implementation of US sanctions on Iran in 2018 — have made this lifeline unreliable.

With Washington now calling on Baghdad to “eliminate its dependence on Iranian sources of energy,” Iraq will need to find alternatives or risk further deterioration of its already unstable grid.

Reforms to energy infrastructure and policies will be required to ensure Iraq’s energy future is sustainable and secure

Jessica Obeid

Recognizing the need for a sustainable solution, Baghdad has taken concrete steps to reduce its dependence on Iranian energy and strengthen its energy security. As a result of its efforts, power generation capacity has expanded by an average of 1 GW to 2 GW annually; however, this remains insufficient to meet rising demand. The key initiatives that the government is currently focused on — expanding domestic gas production and infrastructure, diversifying gas suppliers, deploying renewable energy and connecting to regional power grids — come with significant challenges, ranging from a lack of investment to bureaucratic and political hurdles. Overcoming these will be essential for Iraq to establish a stable and self-sufficient power sector.

One of Iraq’s most immediate needs lies in increasing domestic gas production and infrastructure. A key inefficiency lies in gas flaring. While the country produces significant amounts of natural gas, much of it is burned off because the country lacks the facilities to process it into fuel for local consumption. Iraq has committed to end this practice by 2028 — a long-term solution that will require substantial investment and political commitment. Successfully harnessing this resource could reduce the country’s reliance on Iranian imports and strengthen its energy security.

Iraq is also moving forward with an offshore natural gas platform and transmission line to fuel power plants in Basra, as well as a new 40 km pipeline to carry gas from the southern oilfields to power stations. However, building infrastructure in Iraq has historically been subject to bureaucratic delays and political roadblocks, making the execution of these projects uncertain.

In the meantime, the country is seeking to diversify its gas supply by importing gas from countries such as Turkmenistan and Turkiye. In October 2024, Iraq signed an agreement with Turkmenistan to supply up to 20 million cubic meters per day of gas, though the gas will be transported via Iranian pipelines. While this is a step toward diversifying Iraq’s energy sources, it is still dependent on Iran’s infrastructure — a key vulnerability that Iraq must address if it is to ensure energy sovereignty.

Renewable energy also presents a viable long-term alternative. The country has abundant solar resources and has signed contracts with major developers like TotalEnergies to build large-scale solar projects. However, to implement such projects successfully, Iraq will need to invest in upgrades to its grid infrastructure to accommodate intermittent power. Additionally, ensuring the process is efficient will require targeted policy reforms.

Regional integration also offers a vital alternative to Iran’s power supply. In 2024, Iraq started importing electricity from neighboring countries, including Jordan (150 megawatts) and Turkiye (300 MW). A 1,000-MW interconnection with Saudi Arabia is being created, with Iraq expected to start importing electricity from the Gulf by late 2025. Iraq is also working to double its import capacity from Turkiye, which will help reduce its reliance on Iranian imports and provide additional sources of power.

This crisis is not just a technical challenge, it is a reflection of broader geopolitical struggles and internal dynamics

Jessica Obeid

While these initiatives are crucial, they are only part of the solution. The electricity sector’s challenges are not only due to the shortage in gas and power supply, but also elevated subsidies resulting from political dynamics, as well as high transmission and distribution losses, which are estimated at up to 50 percent. These losses are driven by grid inefficiencies, illegal connections and non-billing practices. Iraq’s ability to build a sustainable power sector ultimately hinges on whether it can implement comprehensive reforms and establish reliable infrastructure that can address these systemic issues.

Iraq’s electricity crisis is not just a technical challenge, it is a reflection of broader geopolitical struggles and internal dynamics. The country’s ongoing dependence on Iran, its internal political divisions and the vested interests that benefit from the status quo all present significant obstacles to achieving energy independence. Iraq’s plans are ambitious, yet the country’s success will depend on its ability to tackle the root causes of its electricity challenges.

This crisis represents both a turning point and a tipping point. The failure to implement reforms and establish a sustainable power sector could push the country deeper into crisis, further eroding trust in the government and worsening its dependence on costly short-term fixes, such as diesel generators or additional Iranian imports.

However, the crisis also presents an opportunity. If Iraq can harness its gas reserves, diversify its energy sources and build stronger regional ties, it could build a more sustainable energy sector for the future.

• Jessica Obeid is the Head of Energy Transitions at SRMG Think, where she leads research on energy security, clean technology and sustainable supply chains. She has extensive experience in engineering and policy, advising governments and private sector stakeholders on energy technologies, policy and market trends.