A gas import deal between Iraq and Turkmenistan has collapsed after Baghdad failed to secure approval from the US government to import gas from the Central Asian country via pipeline through Iran.

“Proceeding (with the Turkmen deal) could trigger sanctions on Iraqi banks and financial institutions, so the contract is currently suspended,” Adel Karim, advisor to Iraq’s prime minister for electricity affairs, told Reuters.

The 2023 deal aimed to secure more than five billion cubic meters (bcm) of gas annually from Turkmenistan.

According to draft contracts between Baghdad and Ashgabat reviewed by the British news outlet, Iran would not receive any money from the deal but could retain up to 23 percent of the gas volumes transferred.

Although Iraq is the second-largest oil producer in OPEC, it has experienced ongoing blackouts since the 2003 US-led illegal invasion. Domestic output reached only 11 bcm in 2023, well below the 45 million cubic meters per day needed during peak summer.

Because of this, Baghdad depends on Iran for about one-third of its electricity – importing 9.5 bcm of gas in 2024 alone.

However, the expiration of a US sanctions waiver earlier this year reduced those imports, removing 3,000 megawatts (MW) from Iraq’s grid – more than 10 percent of the country’s capacity.

To address the decades-long crisis, the Iraqi government is pursuing liquefied natural gas (LNG) imports from Qatar and Oman, and is accelerating domestic gas development.

In August, executives from four Chinese oil companies working to develop Iraqi oil fields announced that their combined production in Iraq is expected to reach 500,000 barrels per day (bpd) by around 2030.
These projects, managed by veterans of China’s state sector, are moving forward under new profit-sharing contracts that favor faster timelines, lower costs, and longer-term returns.

Western energy giants are also advancing strategic investments in Iraq. TotalEnergies is expanding its $27-billion Ratawi project, while BP has received approval to redevelop Kirkuk oilfields.