Iraq’s Deputy Petroleum Minister, Hamid Younes al-Zobai, recently visited Washington in an effort to secure additional funding from the United States. The goal? To convince American energy firms that investing more in Iraq could finally help reduce gas flaring and increase gas production. It’s a familiar pitch that Iraqi officials have been making to the West for over two decades, but this time around it comes with an implicit warning—without this support, Iraq could deepen its growing alliances with Iran and China.
The underlying message has become a classic “shakedown,” leveraging geopolitical ties to get what they want from the West. But there are legitimate reasons why Iraq desperately needs to reduce its flaring and boost gas production. For one, back in 2017, Iraq joined the “Zero Routine Flaring Initiative” to cut down on the wasteful burning of associated gas during oil extraction. At the time, Iraq was the second-largest gas flaring nation after Russia, burning 17.8 billion cubic meters (Bcm) annually. Fast forward to 2023, and Iraq is still wasting 17.7 Bcm, only now trailing Russia and Iran.
Aside from wasting potential resources, Iraq’s failure to use its gas for power generation forces it to depend on costly imports from Iran. This reliance on Iranian gas not only depletes Iraq’s treasury but has also led the U.S. to hold back direct financial aid. The lack of energy independence has also caused frequent power outages across Iraq, sparking public unrest and protests. Increasing domestic gas supplies could help Iraq implement long-awaited petrochemical projects that could yield billions in revenue—if only they could get it together.
Despite its struggles, Iraq is sitting on a wealth of natural gas. Official estimates peg Iraq’s proven conventional gas reserves at 3.5 trillion cubic meters (Tcm), about 1.5% of the global total. A good portion of this—around three-quarters—is associated gas, a byproduct of oilfield activity. More optimistic estimates from the International Energy Agency (IEA) suggest that Iraq’s actual gas reserves could be as high as 8 Tcm, with roughly 30% being non-associated gas.
But despite all these resources, Iraq has done little to reduce its flaring or ramp up gas production. Instead, it keeps signing deals with Iran to import gas—about 40% of its needs—most recently extending an agreement for another five years, a move that has infuriated the U.S. Iraq has also continued to deepen ties with China. Following the U.S.’s withdrawal of combat forces in 2020, China extended its 2019 “Oil for Reconstruction and Investment” agreement with Iraq into the broader 2021 “Iraq-China Framework Agreement.” Under this agreement, Chinese firms are given preference for all future oil and gas contracts in which they have an interest, along with discounted pricing for Iraqi resources. As it stands now, Chinese companies control over a third of Iraq’s oil and gas reserves and are responsible for two-thirds of its production.
China’s role in Iraq’s energy sector, however, has become more restrained. Since the COVID-19 pandemic, China’s financial commitments under its Belt and Road Initiative (BRI) have scaled back, including in Iraq. While Beijing is happy to continue buying discounted Iraqi oil, the funds flowing into reconstruction and infrastructure projects have been curtailed. Still, that hasn’t stopped Iraqi officials from making their usual appeals to Washington, albeit with increased urgency for higher sums this time.
Washington’s approach to dealing with Iraq is a tried-and-true playbook used for countries that still hold strategic importance but remain unreliable partners. Much like past dealings with Pakistan, the U.S. sets out a list of conditions for collaboration and watches to see what happens next. According to a source working closely with the U.S. sanctions regime on Iraq and Iran, recent Iraqi visitors were told that the U.S. would consider working with them in the energy sector—but only if specific conditions were met.
The U.S. approach boils down to three key factors: cohesion, security, and streamlining. “Cohesion” means ensuring that Iraq will see each project through, even amid political changes. “Security” relates not only to protecting U.S. personnel on the ground but also ensuring legal and accounting integrity in any agreements. Finally, “streamlining” means that decision-making processes must run smoothly throughout a project’s lifetime. Any major deal involving American oil and gas companies must be vetted and approved by U.S. lawyers, accountants, project consultants, and security experts.
Transparency International has repeatedly ranked Iraq poorly on its Corruption Perceptions Index, citing rampant embezzlement, procurement scams, money laundering, and bureaucratic bribery that undermine effective governance. To make any future deals work, the U.S. wants to ensure that its companies won’t get entangled in Iraq’s systemic corruption.
Why Did Iraq Turn to China?
After the U.S. military largely withdrew from Iraq, the country faced a financial vacuum. With years of war leaving its economy in tatters, Iraq turned to China for investment and infrastructure support under the Belt and Road Initiative. The need for immediate investment and financial assistance played a huge role in driving Iraq into China’s embrace.
China’s “Oil for Reconstruction and Investment” agreement came with fewer strings attached than Western loans or partnerships, making it an attractive option for Iraq. Unlike the West, China was less concerned with political or security-related conditions and more focused on securing access to natural resources. Additionally, the promise of infrastructure development was a significant factor—something Iraq desperately needed to rebuild after years of conflict.
In return, China gained preferential access to Iraqi oil, including discounted pricing, and the chance to strengthen its foothold in a region of immense strategic value. Iraq’s deepening alliance with China highlights a pragmatic choice for a country caught between its historical alliances with the West and the immediate need for economic stability and growth. The Chinese investments have provided an economic lifeline, though often at the cost of deeper economic dependence and long-term concessions on natural resources.
