With major buyers of its oil in China, India and other Asian markets, Iraq is already deeply integrated into global energy markets, alongside its relations with neighbours such as Jordan and Turkey.
Iraq sells crude to Jordan at a rate of 450,000bl per month. Oil exports of 3.4m b/d would be higher still but for the cessation of pipeline exports via the northern pipeline to the Turkish port of Ceyhan since March 2023, when 470,000b/d of exports were halted after an international arbitration ruling that deemed them as not having federal government consent.
Regional energy relations are burgeoning. The UAE is ramping up purchases of Iraqi crude, with state firm ADNOC beginning its first cargo purchases in April of this year. Iraqi policymakers are focusing on plans to substantially augment these regional relationships through development of its still untapped natural gas reserves. Prime Minister Mohamed Shia al-Sudani’s government is painting on a larger canvas, charting ambitious plans that envisage Iraq’s energy sector as a vital cog in a much broader regional setting.
Iraq has initiated two major projects to cement its role as a vital link between Asia and Europe and to bolster its geopolitical importance: the Grand Faw Port and the Development Road. The port’s masterplan includes extensive container cargo, dry bulk cargo and oil terminals, along with a dry dock and naval base. The proposed 1,200km Development Road would link al-Faw port to Turkey via road and rail and would incorporate a corridor for oil and gas pipelines.
Politics is a key shaping factor in this project activity. The Grand Faw Port and the Development Road projects are part of a government vision to do something different.
“The Sudani government is making a point about the need to think about Iraq first,” said Renad Mansour, head of the Iraq Initiative at thinktank Chatham House. “The Development Road is part of the prime minister’s pitch to the Iraqi people to say, we can offer you something different through these mega projects.”
Now is an opportune moment for Iraq to create interdependencies with neighbours such as Kuwait and Turkey. Even though the latter remains locked in a conflict with PKK forces in the north of Iraq, major international projects can create the means for Iraq to be valuable to Turkey.
The rationale for the Development Road is to transform the country’s economy by accelerating development, accentuating connectivity to the global market and establishing new modes of revenue and employment creation.
The Development Road plan gained renewed moment in April 2024, when Iraq joined together with Turkey, Qatar and the UAE to establish the framework for implementing it. The project will start at al-Faw Port on the Gulf coast and finish at Faysh Khabur on the Iraq-Turkey border, before extending through the latter’s extensive rail and highway networks. By 2028, the freight trains transport capacity will reach 3.5m containers and 22mt of bulk cargo a year, rising to 7.5m containers and 33mt of cargo by 2038, and to about 40mt of cargo by 2050.
Energy is the glue that binds these projects together. On the Grand Faw project, the centrepiece is a major refinery project that involves Iraq’s state-owned Southern Refineries Company and China National Chemical Engineering Company. The al-Faw Investment Refinery Project is part of a government plan to hike refining capacity and boost domestic petroleum product output.
The new $8b refinery will have a capacity of 300,000b/d and will aim to supply domestic and international markets. The project is part of the Iraqi government’s plan to boost production of domestic petroleum products. The second phase will see a petrochemical plant built with a 3mt/yr capacity.
Al-Faw Port could emerge as one of the region’s largest ports. Notably, it is attracting the interest of Gulf states. The UAE is particularly keen, with AD Ports Group striking a preliminary joint venture agreement with the General Company for Ports of Iraq to develop the port and its associated economic zone.
Energy matters
Above all, Iraq’s ambitious vision rests on its credibility as a supplier of energy. According to Abbas Kadhim, head of thinktank the Atlantic Council’s Iraq Initiative, Iraq is one of the few countries in the region with room to increase its oil export capacity.
“No country in the region other than Iraq is able to add 5–6m b/d more than its current production,” said Kadhim.
OPEC supply constraints suggest such increases in production are unlikely in the near-term. Nevertheless, the refining expansion underway could help Iraq to transform itself into a regional supply hub.
“Iraq is seriously doing a good job on the refining side, especially in the past couple of years,” said Palash Jain, refining analyst at consultancy FGE. “And going forward, there are a couple of projects, such as the Basrah refinery upgrade that is expected to come onstream around 2025 or 2026, which will be important for increasing gasoline production.”
It is not just from the refining side that progress is being registered. “On the gas supply side, over the past couple of years we have gas processing plants that have come online, such as Basrah train one and the Halfaya gas plant. Furthermore, we anticipate that three additional projects will become operational within the next 9–12 months: the Dhi Qar Gas Plant, Basrah NGL Train 2 and the Khor More Gas Plant,” said Jain.
The government has sanctioned budget for a pipeline between Basrah and Haditha that will support domestic consumption as well as exports. “All these developments show that Iraq’s political stability is helping a lot, and that Iraq can become an energy hub in future if it ensures continuity of political and economic stability and resolves disputes between the Kurdistan Regional Government and the federal government,” said Jain.
If Iraq is serious about cementing its credentials as a regional energy hub, it will have to think seriously about its future integration with regional markets.
“Iraqis face important questions. One is, do they want to be a place where people drop a few coins as they travel through, or do they actually want to be an integral part of this Development Road—in other words, develop an economy around it?” said Kadhim.
Alongside the logistical and funding challenges, other factors threaten to undermine Iraq’s progress. The existence of rival competing projects to the Development Road is a challenge.
The Chinese-led Belt and Road Initiative and the India–Middle East–Europe Economic Corridor (IMEC), backed by the US, envisage connectivity and infrastructure development going hand in hand, and linking a number of countries and regions.
“Within the Gulf region, Kuwait has its own port that is situated close to al-Faw,” said Kadhim. While IMEC has heavyweight backing, it would require a full normalisation of relations between Saudi Arabia and Israel to be implemented. That looks a distant prospect.
“The question is, can these development projects become operational before the political side of things can be realised? In this way, the Iraq route may make more sense.”
Iraq is still a long way from realising these grandiose regional ambitions. But the deals being inked suggest the Development Road and Grand Faw Port projects are starting to gain serious momentum, giving Iraq hope of making itself a much more important regional player.
This article forms part of our recent Energising Iraq report, produced in conjunction with Crescent Petroleum. Click here to download your free copy.
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