Iran and Iraq have signed a five-year deal that will see Iran pump up to 50 million cubic meters of natural gas per day according to the needs of Iraqi power stations in exchange for oil and gasoline.
Iraq's Ministry of Electricity Ziad Ali Fadhel and the CEO of the National Iranian Gas Company, Majid Chegeni, finalized the contract to extend Iran’s gas exports to Iraq in Baghdad on Wednesday.
After decades of electricity shortages because of war, corruption and mismanagement, oil-rich Iraq is heavily reliant on imported Iranian gas to meet its electricity needs. Iran has been supplying energy to Iraq for the past 10 years under an agreement signed in July 2013.
With an aging electricity grid unable to match the growing demand, Iraq suffers frequent power outages. However, Iran itself is in dire need of natural gas for its domestic electricity production as well as keeping its steel, petrochemical and other heavy industries afloat.
Iran’s insists on gas exports despite the huge deficit in production and growing domestic demand that has severely damaged the country’s industrial sector. Tehran might have various motivations driving this policy, including keeping Iraq dependent.
Last year, Iraq imported about nine billion cubic meters of natural gas from Iran, meaning that Tehran supplied about 25 million cubic meters per day. The new deal has envisioned twice that amount but only for periods when Iraq needs it. Iraq’s Ministry of Electricity said the deal would "ensure the sustainability of the work of power plants and keep pace with the peak loads and the increasing demand for electric energy."
Iran’s Oil Ministry’s press service, Shana, claims that Iran’s gas exports has increased to nearly 50 million cubic meters (mcm) per day in recent months after Iraq settled part of the debts it owed to the NIGC.
Over the past five years, there has been a notable disparity between electricity generation and the domestic demand in Iraq. Electricity consumption has increased by nearly 30%, outpacing the government's efforts to meet the surging demand. Imports from Iran are especially vital during the sweltering summer months when Iraqis are forced to pay for private diesel generators or suffer through temperatures that often top 50 degrees Celsius (122 degrees Fahrenheit). The crisis usually comes back amid severe cold weather in winter.
The new agreement with Iran is viewed as a stopgap solution to help Iraq fulfill its electricity requirements while it works on developing its own gas fields. Baghdad is under increasing pressure from the US to wean itself off electricity and gas imports from Iran, under US sanctions since 2018.
In addition to gas supplies, Iraq also relies on Iran for nearly a third of its electricity. However, cash-strapped Iran switches off its electricity and gas exports to put pressure on Baghdad to urge Washington for waivers. Iran only prioritizes its local consumers when Iraq seems unable to transfer the funds.
The US has issued Iraq a series of sanctions waivers to continue importing Iranian energy but has warned the waivers could end if Baghdad does not make serious progress toward finding other fuel and power sources. Although Baghdad has sought to diversify its electricity supply through overtures to countries such as Saudi Arabia, Turkey, Jordan, and Kuwait, no significant progress has been made on these fronts.
The waivers issued by the US every 120 days are reportedly limited to non-sanctioned goods, stressing Tehran could only use the funds for humanitarian trade and seeking to blunt criticism of giving Iran the money that can be used to fund terrorism. However, since July 2023, the US has started allowing Iraq not only to make payments into restricted Iranian accounts in Iraq but also for the funds to be sent to similarly restricted accounts in third countries.
In July, Tehran and Baghdad also agreed to barter oil and gas after Iran cut its gas supply by over 50% due to Iraq’s unpaid debts which worsened the electricity crisis in the country.
In late 2022, the United States tightened measures on Iraq's access to its foreign reserves held in the Federal Reserve due to suspicions of money being transferred to Iran, Syria, and other sanctioned entities.
The rial reached its lowest historical value during the past week, as each US dollar traded at 610,000 rials in open markets, 43% more than in March 2023.
The fall of the rial is hard to explain at the first glance as the country’s oil export volume has increased significantly. But a closer look at official statistics reveals lower growth in revenues. This can explain why the government has limited means to influence the currency market in Tehran.
According to Kpler’s statistics, Iran exported about 1.3 million barrels (mb/d) of crude oil and gas condensate in 2023, indicating a 48% growth year-on-year.
The country also exported 1.39 mb/d and 1.44 mb/d in January and February 2024, Kpler estimates.
However, the latest Iranian Customs statistics show the country’s oil export revenues increased by only 7.8% year-on-year to $32.59, during 11 months of last fiscal year, from March 21, 2023, to February 20, 2024.
The reason for the huge gap between volume and value of Iran’s oil exports remains unclear, while oil prices in international markets declined only 17% year-on-year in 2023 and remained unchanged in 1Q2024, compared to the same period of last year.
It seems the country has given further oil discounts to Chinese refineries.
When the United States withdrew from the JCPOA nuclear deal in 2018 and imposed oil export sanctions on Iran, shipments of crude dwindled to around 300,000 barrels per day, one-seventh of pre-sanction volumes. But China began increasing purchases of Iranian oil when President Joe Biden was elected and signaled his plans to revive the nuclear agreement. As the administration engaged in negotiations that ultimately proved futile, sanctions enforcement lost their momentum, allowing Iran to more than triple its oil exports.
However, customs statistics show decline in non-oil export revenues and a notable increase in imports, that has lately led to a trade imbalance.
Foreign trade balance
The Custom statistics show $19 billion surplus in foreign trade in 11 months of last fiscal year, but the figure does not include Iran’s total imports, including services such as transportation of its oil exports by foreign vessels, as well as natural gas, gasoline, diesel and electricity imports.
Traditionally, Iran’s service imports are about $15 billion annually, while its service export is a half of this figure. Also, in the last three months media in Tehran report a negative trade balance.
Ali Nazi, vice-president of The Islamic Republic of Iran Shipping Lines (IRISL) announced May 2023 that Chinese independent ports, that handle most of commodity loading and unloading operations, do not allow Iranian ships to dock due to sanctions anymore. As a result, most of Iran’s energy and other trade with China are handled by Chinese or other vessels.
Iranian ships are allowed to dock only in two state-run ports, where Ali Nazi descried them “inappropriate” for commodity trade due to poor facilities as well as the increase in loading and unloading time and cost.
IRISL has faced even tougher conditions in operating elsewhere, especially European ports.
On the other hand, Iran has to use foreign tankers and ship-to-ship operations for oil exports to bypass US sanctions.
Therefore, it seems the country’s services trade imbalance has increased significantly during 2023-2024.
Iran also started natural gas, gasoline and diesel imports during last fiscal year, while its electricity imports also increased due to domestic shortages.
The Custom statistics, don’t include these items as well.
On the other hand, Iran has a huge amount of capital flight.
The Central Bank of Iran (CBI) has not published the capital outflow statistics for the past fiscal year, but it was $15 billion in the previous year (March 2022-March 2023).
Hard currency problem
Iran has negative trade balance with all of its major partners, except Iraq and China. Therefore, it can’t use, for instance, Indian rupee, Turkish lira or UAE’s dinar for covering trade with these countries.
Iran can use Chinese yuan for covering negative balance in non-oil trade and pay for Chinese services, but it needs hard currencies like US dollar or euro to cover negative trade balance with other partners.
It is noticeable that according to Eurostat (European statistics body), 27 EU members exported 3.934 billion euros worth of goods to Iran, while imported only 799 million euros from the country in 2023.
Iraq was the only major open door for Iran to access US dollars, but Washington in 2023 imposed tough sanctions on several Iraqi banks that were involved in USD smuggling into Iran.
The US sanctions on Iraqi banks have put Iran in a very complicated situation, because it has about $9 billion surplus commodity trade with Iraq exporting gas and electricity, while the Iraqi dinar is a useless currency for covering Iran’s foreign trade negative balance.
Turnout hit a record low, with just 41% of eligible voters casting ballots, according to government figures many consider inflated. During the last parliamentary contest in 2020, there was a 42% turnout. This was in keeping with a trend line of diminished electoral enthusiasm in recent years owing to mass candidate disqualifications, disaffection with the Islamic Republic’s system of governance, and dismal state management.
The ascension of the victors in the election represented a further narrowing of the circle of power in Iran. Reformists like former President Mohammad Khatami have been effectively banished from significant positions in the Islamic Republic. Khatami never even received a post from the Supreme Leader Ali Khamenei after his presidency, in contrast with some of his predecessors. Pragmatists have also suffered. Former President Hassan Rouhani was disqualified from running for the Assembly of Experts, despite Rouhani having held a seat there since 2000, and like Khatami, he never received a post-presidential landing spot from Khamenei. Rouhani’s former justice and intelligence ministers were also disqualified.
Even longtime conservatives have suffered in this contest. Mohammad Bagher Ghalibaf, the current speaker of parliament, who was reelected, nevertheless finished in fourth-place in Tehran, which was a turnaround from Ghalibaf finishing in first-place in 2020. He won fewer votes than ultraconservatives Mahmoud Nabavian, young upstart Amir-Hossein Sabeti, who has been a television host on the state broadcaster IRIB, and Hamid Rasaee.
Ghalibaf’s fall is consistent with a trend of humiliation enjoyed by political dynasties and personalities during Khamenei’s tenure—Ghalibaf’s predecessor as speaker Ali Larijani was barred from running for president in 2021. His brother Sadegh Larijani, a former chief justice and onetime member of the Guardian Council, did not win a seat on the Assembly of Experts in 2024, despite being a member of the chamber since 1999.
The current election will not change the fundamentals of the Islamic Republic’s policies or its relations with the United States. Structurally, parliament is subordinate to the decisions and political whims of the Supreme Leader and the Supreme National Security Council (SNSC) on the most sensitive files, for example the nuclear program. However, the occupants of the speakership of parliament and the chairmanship of the Assembly of Experts will be important, given that the speaker is a standing member of the SNSC, and the chairman of the new Assembly of Experts may very well be in place when it is constitutionally tasked with selecting a successor to Khamenei, who turns 85 this year.
Close attention should therefore be paid to potential candidates for the speakership of the new parliament.
Mohammad Bagher Ghalibaf
Ghalibaf faces headwinds in retaining his post as speaker of parliament. Newly-emboldened members of parliament like Hamid Rasaee, who received more votes than Ghalibaf in Tehran, have called for his ouster and proclaimed him a “hypocrite.” There has even been speculation in Iranian media of Ghalibaf’s credentials being held hostage to smooth the way for the credentials of controversial incoming members of parliament like Rasaee to be approved despite Rasaee, who has previously served in parliament, firing pointed barbs at Islamic Republic mainstays like the late Islamic Revolutionary Guard Corps (IRGC) Quds Force Commander Qasem Soleimani. Khamenei had warned candidates to avoid inflammatory statements which cause division. Ghalibaf, a former commander of the IRGC’s Khatam Al-Anbiya Construction Headquarters and Air Force, has been trailed by sensational allegations of corruption for much of his recent career, especially as mayor of Tehran. But he has always been protected by Khamenei and never held accountable.
This raises the prospect that Khamenei will let it be known that he prefers for Ghalibaf to retain his seat as speaker of parliament in the interest of stability. In fact, his predecessor, Larijani, was the longest-serving speaker, holding the post from 2008 until 2020. But there is precedent for speakers of parliament in the Islamic Republic to serve only four years in the role, which Ghalibaf has held since 2020. For example, Gholam-Ali Haddad Adel was speaker from 2004 until 2008. Mehdi Karroubi was speaker for two, non-consecutive four-year stints.
A choice to retain Ghalibaf would be a safe choice for the system, given Khamenei’s advanced age and the system preparing for what it hopes will be a smooth succession. The role of the speaker as a member of a critical body like the SNSC in this context should not be underestimated. It would also signal more continuity than change in policymaking given that the internal dynamics of the SNSC would remain the same.
Mahmoud Nabavian
Nabavian achieving a first-place finish in Tehran will bolster speculation about the strength of his stock to become speaker of parliament. Nevertheless, a first-place finish in Tehran is not necessarily the only path to becoming speaker. For example, during the 2016 parliamentary elections, Ali Larijani became speaker after coming in second-place in Qom and prevailed over former First Vice President Mohammad Reza Aref, who came in first-place in Tehran.
This is not Nabavian’s first time serving as a member of parliament—he was a legislator from 2012 until 2016 and then again from 2020 until the present. A cleric by training, he taught at the Imam Khomeini Educational and Research Institute, where he grew close with the late Ayatollah Mohammad-Taghi Mesbah-Yazdi. Known as the “crocodile,” he held hardline views, arguing that “accepting Islam is not compatible with democracy” and advocating for Iran to develop nuclear weapons. An opponent of the Iran nuclear deal, Nabavian has hewed closely to his mentor’s radicalism, proclaiming that “we don’t aspire to obtain a nuclear bomb, but it is necessary so we can put Israel in its place.” He has also said, “we should not remain within our borders” and boasting that “now Iran’s borders are in Syria, Lebanon, Yemen, and Iraq.”
Khamenei is the decision-maker on Iran’s nuclear program. However, if Nabavian were to become speaker, he would join the SNSC, and thus have a platform to influence debates over the nuclear program, at a time when there have been growing calls from some quarters of the Iranian establishment to pursue nuclear weapons. It is important not to overstate the power of the speaker on the SNSC, but it would usher in an even greater hardening within the SNSC—whose membership has grown increasingly conservative in recent years. This is because Ghalibaf, while being conservative, is not on record publicly as pushing for Tehran to develop a nuclear weapon—in fact in 2008, Ghalibaf told an audience at the World Economic Forum in Davos that “we don’t need any atomic weapons or unconventional weapons.” If Nabavian becomes speaker, he would also break the trend of the last three speakers of parliament being non-clerics.
Other Candidates
Iranian media has mentioned other candidates for speaker, including Hamid Rasaee, Morteza Agha-Tehrani, and Manouchehr Mottaki. Rasaee has served in parliament during previous terms, worked at the IRGC’s research center, served as an advisor to the culture minister, and lived in Africa in the 1990s. However, placing Rasaee in such a leadership role would be a risky bet as succession looms large given his explosive tendencies, including criticism of an in-law of Khamenei. He has also faced off against senior operatives of the Office of the Supreme leader, like Khamenei’s intelligence advisor Asghar Mir-Hejazi, which likely will not improve his stock, despite the third-place finish in Tehran.
Agha-Tehrani, who previously vied for the speakership in 2020, served as Mahmoud Ahmadinejad’s ethics advisor during his presidency and represented Khamenei in North America, residing in both Canada and the United States. Like Nabavian, Agha-Tehrani also taught at Mesbah-Yazdi’s Imam Khomeini Educational and Research Institute. Agha-Tehrani, a critic of the Iran nuclear deal, may have difficulties in the speakership contest due to him reportedly holding a US Green Card at one point. In 2020, parliament passed a measure banning US Green Card holders from running for the presidency. Agha-Tehrani’s leadership of the Paydari Party was also contested over the situation, with Sadegh Mahsouli replacing him as secretary-general in 2021.
Mottaki, who came in eighth place in Tehran, served as foreign minister during the Ahmadinejad administration until he was fired while on official travel in Africa. He will be the first former foreign minister to hold a seat in parliament after heading the Ministry of Foreign Affairs. Before becoming foreign minister, Mottaki also served as a member of parliament, was a deputy foreign minister, and ambassador to Turkey and Japan. However, his firing as well as being disqualified from running for the presidency in 2013 by the Guardian Council may weaken his candidacy as it raises questions about Khamenei’s confidence in him.
In terms of resume, Ghalibaf and Mottaki are the most qualified managerially—with both serving in senior positions in the IRGC, parliament, and Ministry of Foreign Affairs, respectively. The credentials of Nabavian, Rasaee, and Agha-Tehrani, aside from stints in parliament, are more ideological. This puts them at a disadvantage as all speakers of the Islamic Republic’s parliament had more stature and a combination of executive and legislative credentials within the system ahead of assuming the office.
Chairman of Iran’s Assembly of Experts
Ayatollah Ahmad Jannati, at age 97, decided not to stand for reelection to the Assembly of Experts for the upcoming term. Jannati has served as its chairman since 2016. With Khamenei turning 85 this year, this leaves a vacancy in a post which will likely preside over the selection of the next supreme leader following his death.
During the last succession in 1989, then-Speaker of Parliament Ali Akbar Hashemi Rafsanjani campaigned for Ali Khamenei to be selected as Supreme Leader, claiming to have heard Khomeini suggest him as “a suitable candidate.” However, no hard evidence has ever surfaced to show a preference by Khomeini. If any such evidence existed, Khamenei and the regime would have long showcased it to buttress his legitimacy. However, Khamenei is believed to be planning his succession. A report last year indicated that only the chairman of the Assembly of Experts and members of a subcommittee it empaneled that was tasked with the possibility of naming a deputy supreme leader have knowledge of its innerworkings. This positions Jannati’s replacement as chairman in a critical role given his likely proximity to Khamenei’s succession wishes.
Since 1989, all chairmen of the Assembly of Experts have been Khamenei loyalists, with the prominent exception of Rafsanjani, who occupied the role from 2007 until 2011 and had more independent stature given his original revolutionary credentials. Two—Mahmoud Hashemi Shahroudi and Mohammad Yazdi—served as chief justice prior to becoming chairman, and one—Mohammad-Reza Mahdavi Kani—was prime minister and interior minister.
This positions Ebrahim Raisi as a potential candidate to succeed Jannati as chairman of the Assembly of Experts. Raisi has been a vice chairman under Jannati and has served as both chief justice and president, which is consistent with Mahdavi-Kani, Shahroudi, and Yazdi’s executive and judicial experiences, respectively. However, it would be unprecedented for an incumbent president to concurrently serve as chairman of the Assembly of Experts. It would also raise questions as to whether Khamenei is positioning Raisi as merely a placeholder for another Khamenei-preferred candidate like his son Mojtaba or whether this is a further coronation of a Raisi supreme leadership, given the series of powerful posts he has added to his resume throughout his career. Right now, Raisi is the most qualified individual in the Islamic Republic to chair a succession—having presided over two branches of government. No other cleric has such a resume.
Nevertheless, Raisi is not the only candidate for the chairmanship. The last three chairmen of the Assembly of Experts—Shahroudi, Yazdi, and Jannati—have concurrently served on the Guardian Council. That leaves open the prospect that a sitting member of the Guardian Council will ascend to the Assembly of Experts chairmanship like Alireza Arafi, Ahmad Khatami, or Ahmad Hosseini Khorasani. Alternatively, the Assembly of Experts may decide to anoint a chairman from its current Executive Board which includes Mohsen Qomi, who is a dependable Khamenei confidante, and works in his office as a deputy advisor for international affairs.
Starting in May, the selections for these leadership posts will be revealed. The occupants will play key roles in the debates and deliberations of the Islamic Republic as Khamenei ages.
