New LNG Terminal Will Help Extricate Iraq From Iran’s Energy Orbit

Iraq is slowly taking steps to wrench its energy sector free from Iran’s influence, but it will require both American support and strong encouragement to do so.

Excelerate Energy, an American company, announced an agreement on October 28 with Iraq to build the country’s first floating liquefied natural gas (LNG) terminal at Khor al-Zubair on the Persian Gulf. The terminal will be Iraq’s first direct access to import LNG from the global market, and Excelerate will also serve as the project’s LNG supplier. The value of the investment is estimated at around $450 million, and the project’s contract is for five years with the possibility of an extension.

The U.S. Embassy in Baghdad said, “This project is a crucial step for Iraq’s energy independence from Iran, strengthening Iraq’s sovereignty and creating prosperity for both our nations.” Iraqi energy independence from Iran is an important component of the Trump administration’s maximum pressure campaign on Tehran.

Baghdad Buys Billions’ Worth of Gas Each Year From Tehran

Despite Iraq’s status as OPEC’s second-largest oil producer and the country’s substantial natural resources, it relies on Iranian energy to power its grid. In recent years, Iraq has bought $4-$5 billions’ worth of gas from Iran per year. This imported gas generates  30 percent to 40 percent of Iraq’s electricity, according to Iraqi officials. In March 2024, Iraq signed a five-year deal to purchase gas from Iran, however, gas exports to Iraq in 2025 fell by about 40 percent between April and August.

Even combined, Iraq’s imports and its own resources frequently fail to meet domestic energy needs. Iran’s own struggles to meet its domestic energy demands hinder its ability to reliably export gas, especially in times of high demand, such as the hot summer months.  The result is blackouts all over Iraq.

Opportunities for Iraq To Diversify Imports, Increase Domestic Gas Production

Iraq has secured deals with international energy companies to develop domestic infrastructure and expand energy imports beyond Iran. However, some approaches would fail to remove Iran’s influence from Iraq’s energy sector. For example, one proposal includes purchasing gas from Turkmenistan, which would require Iran to play a crucial intermediary role.

Iranian imports aren’t Iraq’s only challenge in the energy sector. Iraq flares about 30 percent of the gas produced by its oil fields. This is both a wasteful and environmentally detrimental practice that Iraq engages in due to infrastructure and technology limitations that leave the country unable to harness all of its natural resources. The Iraqi government plans to reduce gas flaring by attracting investments to develop the necessary infrastructure to capture and utilize the gas to meet domestic demand.

Trump Administration Should Prohibit Iraq’s Import of Iranian Gas

In March, the Trump administration rescinded a Biden-era sanctions waiver that had authorized Iraq to purchase Iranian electricity. This exemption gave Iran access to $10 billion that had previously been held in escrow. These funds have since fueled Iran’s malign activity at home and across the region, at least indirectly.

 Despite rescinding the waiver that permitted Iraq to purchase Iranian electricity, the administration still allows for the import of Iranian gas. Instead, it should lay out a short timeline for Iraq to cease importation of Iranian gas and replace the lost supply from non-sanctioned sources. American companies can support Iraq’s energy diversification by investing in and developing Iraqi infrastructure to help it harness the potential of its domestic supply. Also, investments in projects like Excelerate’s LNG terminal venture support Iraq’s ability to import gas without relying on Iran.

Bridget Toomey is a research analyst at the Foundation for Defense of Democracies (FDD). For more analysis from Bridget and FDD, please subscribe HERE. Follow Bridget on X @BridgetKToomey. Follow FDD on X @FDD. FDD is a Washington, DC-based, nonpartisan research institute focusing on national security and foreign policy.