Iraq seeks western investment to cut flaring, boost gas output: deputy oil minister

Iraq, a major gas flaring offender, is seeking investment, particularly from American and Western firms, in its associated gas sector to reduce flaring and boost production, the country’s Deputy Minister of Petroleum Hamid Younes al-Zobai said at an Oct. 15 conference in Washington DC.

As OPEC’s second-largest producer, Iraq is one of the worst offenders of gas flaring globally -- a toxic and wasteful practice that releases usable gas into the atmosphere.

“The Ministry of Oil is incentivizing foreign companies to operate in Iraq and the current government is setting plans to invest to cooperate with international companies,” al-Zobai said through a translator at the Atlantic Council’s event on Iraq’s energy sector. “Iraq is keen to develop its gas sector and make advancements.”

With a goal to be self-sufficient in gas in five years, Iraq is actively seeking investment, with the US encouraging American companies to enter the country’s energy sector.

High-level Iraqi delegations have visited the US twice this year to meet with American government officials and private sector companies, with the second visit culminating in multiple deals.

“We have given permission to US and European companies to work with the Iraqi government and the US government is making plans to cooperate with local Iraqi companies,” al-Zobai said.

US interests in Iraq are twofold: counter growing Chinese influence in Iraq’s energy sector and reduce Iraq's reliance on electricity imports from Iran.

Iraq, which suffers frequent power outages, relies heavily on electricity imports from Iran, which are subject to US sanctions waivers. The US is helping Iraq attract American firms to invest in gas capture projects to reduce this dependency. However, concerns about security and corruption have made American firms hesitant to invest, keeping them largely on the sidelines.

In Baghdad, Iraq's Finance Minister Taif Sami met with the US ambassador to discuss government efforts toward economic reforms aimed at attracting investment. Governance and financial reforms to tackle corruption have also been central to these bilateral talks.

With Western majors withdrawing from Iraq's energy sector, the country has turned eastward to meet its goals of boosting crude and gas production capacity and reducing gas flaring. For example, PetroChina has taken over as the project operator at West Qurna 1 after ExxonMobil's 2023 exit, following the sales of its 22.7% stake to Iraq’s BOC.

A World Bank report released in June showed that Iraq increased its oil production in 2023, but flaring dropped 1%. Seven deals were signed with US firms in April deal with associated gas and gas flaring to further reduce the practice.

Western selloffs have increased China's control over the Iraqi oil sector. In the latest licensing round in May, Chinese firms won 10 of the 13 oil and gas projects available, with smaller Chinese companies also participating, marking a deeper embedding of Chinese companies in Iraq’s oil sector.

China’s success in Iraq’s energy sector is long-standing, and the East Asian giant is also the largest purchaser of Iraqi crude. For the first nine months of 2024, China imported 33.42% of Iraqi crude, according to Iraq Gulf Terminals loading data obtained by S&P Global Commodity Insights.

“From the first bidding rounds about 16 years ago, it was Chinese companies that were eager, and western companies were perhaps more hesitant,” said John Calabrese, an assistant professor at American University who focuses on Middle East and East Asia foreign policy.

“Chinese companies have essentially deeply embedded themselves over a particularly long period of time, and that has given them a competitive edge,” Calabrese added.