Radio Farda - Amid U.S. sanctions on Iran, Iraq is currently facing a challenge in addressing energy needs and supply of other vital goods, as its chief supplier of natural resources and a key trading partner grapples with its own isolation.

Following the imposition of U.S. sanctions on Iran, particularly on oil and gas exports, Iraq was given 45 days by the U.S. to stop importing Iranian gas. Yet this deadline was clearly not enough, as the Iraqi government has called for an extension, citing difficulties with replacing Iranian supplies.

As a result of the 2003 invasion of Iraq, as well as ongoing instability, Iraq depends on Iranian gas as a source of electricity. With some estimates claiming that up to 39 million Iraqis depend on Iran’s gas, it is clear that Iraq faces an immensely difficult challenge in satisfying the increasing demand for electricity.

This issue becomes even more pressing due to frequent power cuts, which have resulted in widespread protests last summer.

With that in mind, it is clear that Iraq must quickly address its economic problems. Iraq’s central government has managed to land a key deal with the Kurdish forces in North Iraq, allowing it to resume oil exports from Kirkuk, one of the centers of oil production in Iraq. While this deal allows the Iraqi government to export oil through the pipeline in Kurdish territories to Turkey and earn more money, the issue for Baghdad has been how to use its already big oil income to build a viable economy.

Iraqi businesses currently have an immense opportunity in meeting the demand for basic goods such as milk, which were often imported from Iran. Indeed, the southern city of Basra has recently witnessed the opening of a dairy plant, which can produce up to 10 tonnes of packaged milk per hour, thus meeting the demand in Basra and its surroundings.

With its oil income largely spent on government operations, Iraq is in a desperate need of foreign investment to rebuild its still damaged infrastructure. Indeed, the 10 million dollar dairy plant itself was the product of Lebanese investment. In this sense, Iraq needs to diversify its portfolio of foreign investors to avoid potential backlash due to the Iranian sanctions.

It comes as little surprise that the new Iraqi president Barham Saleh visited Saudi Arabia where he was received by King Salman. In what was described as a “thawing of ties” the two leaders “discussed regional developments”. Although Iraqis might wish for Saudi Arabia to be a top investor in their country, Iran’s influence in Iraq can easily dissuade their arch-rivals from risking any money in a country full of Shiite militias.

Nevertheless, Saleh’s visit to Saudi Arabia was preceded by his trip to Tehran. Meeting the Iranian President Hassan Rouhani on November 17, Saleh voiced his desire to further strengthen ties between the two counties, despite the short period of exemptions from US sanctions. Indeed, while trade between the two countries was estimated to be worth roughly 7 billion dollars in 2017, the leaders have vowed to increase it to 8.5 billion this year.

The promise of trade was equally followed with the desire to further strengthen strategic ties, with Salih calling for the formation of a “new regional system”, which Iraq and Iran would be part of. Moreover, Iran’s Supreme Leader Ali Khamenei asked Salih to preserve the Iran-backed Shia militia known as Hashd al-Sha'bi, which was recognised by the Iraqi government as a reserve force in December 2016.

Knowing that this militia is vehemently opposed by the United States government, it seems that Iraq faces a much greater challenge in addressing its connections to Iran. Indeed, while the temporary exemption from US sanctions is still in place, Iraq is quite likely to experience the impact of the sanctions in the near future. Moreover, while president Salih has said that Iraq should not be “a field for struggle between conflicting demands and wills”, it seems that the recent talks with both Iran and Saudi Arabia highlight the complicated position of Iraq in Middle Eastern geopolitics, potentially giving way to future issues.