BAGHDAD — Iran’s embattled oil minister, Mohsen Fakhr-Nezhad, made a diplomatic visit to Baghdad this week as mounting U.S. sanctions and an Iranian gas cutoff to Iraq threaten regional stability. The visit, which featured meetings with senior Iraqi leaders and a public tribute to slain IRGC commander Qasem Soleimani and his Iraqi ally Abu Mahdi al-Muhandis, underscores the depth of Tehran’s economic and political reliance on Iraq amid a surge in cross-border crises.
The high-level talks between Fakhr-Nezhad and his Iraqi counterparts were driven by three converging pressures: the recent interception of Iranian oil tankers using forged Iraqi documentation for sanctions evasion; Iran’s abrupt halt to gas supplies, jeopardizing Iraqi electricity production; and fresh U.S. sanctions directly targeting Fakhr-Nezhad. The combination of these challenges exposes both the vulnerabilities of Iran’s economy and the challenges facing Iraqi energy security in an increasingly volatile region.
Background: Oil, Gas, and Sanctions
For years, energy ties have formed the backbone of relations between the Islamic Republic and post-2003 Iraq. While Iraq remains heavily dependent on Iranian natural gas—up to half its power generation relies on Iranian imports—Iran in turn sees Iraq as an essential market for oil sales and a conduit for financing outside the Western banking system. U.S.-led sanctions, renewed and expanded in recent years, have sharply constrained Tehran’s ability to export energy and access funds, prompting ever more elaborate schemes to move oil illegally, including the use of falsified shipping paperwork and shadow fleets.
The recent seizures of tankers attempting to pass off Iranian oil as originating in Iraq signal new international resolve to block Iranian sanctions-busting. Baghdad, under pressure from Washington not to abet Tehran’s circumvention, has launched investigations and pledged to cooperate with maritime and customs authorities.
The Gas Crisis and Regional Instability
Tehran’s sudden decision to suspend gas exports—officially justified as a response to Baghdad’s overdue payments—paralyzes Iraq’s fragile power system, raising the specter of blackouts during the summer’s peak demand. In practice, the move is widely interpreted as leverage in ongoing negotiations; by squeezing Iraq, Iran seeks improved payment terms and political support in defiance of Western sanctions.
The risk is not only technical, as disruptions ripple through industry and household life, but also political. Over the past several years, power outages and energy shortages have provoked riots and mass protests in Iraq, sometimes threatening the survival of governments and fueling local resentment against both Baghdad and Tehran. Iraqi leaders, aware of the tightrope, have sought compromise—discussing partial payments, new banking arrangements, and commitments to insulate energy flows from outside pressures.
Sanctions and Diplomatic Fallout
Fakhr-Nezhad’s own targeting by U.S. sanctions further complicates Iranian diplomacy. The Treasury Department’s measures, part of a broader crackdown on networks linked to the Islamic Revolutionary Guard Corps (IRGC), have eroded Iran’s access to international markets and financial channels. Western officials cite evidence that these revenues support terror proxies across the region, from Hezbollah in Lebanon to Hamas in Gaza and militias in Iraq and Syria.
Within this context, Fakhr-Nezhad’s homage at a Baghdad memorial to Soleimani and al-Muhandis was notable. Both men, killed in a U.S. airstrike in 2020, symbolize Iran’s deep entanglement in Iraq and its determination to maintain influence despite political headwinds. The messaging was unmistakable: Iran is under pressure, but not prepared to cede its foothold.
Broader Geopolitical Stakes
For Israel and its allies, the confrontation over Iranian oil and gas is inseparable from the broader conflict with the network of Iranian-backed forces across the region. Since the October 7th massacre perpetrated by Hamas in southern Israel—the deadliest antisemitic atrocity since the Holocaust and facilitated by Iranian funding and expertise—Iran’s ability to finance its proxies has become a critical front in the war for regional security.
Israeli officials have repeatedly emphasized the imperative of sustained sanctions enforcement and international vigilance against Tehran’s sanctions-evasion tactics. Disrupting Iran’s revenue streams, they argue, is vital to hampering its capacity to arm and direct asymmetric attacks against Israel and other U.S.-aligned interests from Gaza, Lebanon, Yemen, and Iraq.
Economic Fallout and Internal Pressures
Inside Iran, tightening sanctions and lost export revenue are deepening economic distress—including inflation, currency depreciation, and daily hardship for ordinary residents. The restoration of oil flows to Iraq, even through back channels, is seen by Iran’s leadership as vital to both internal stability and the continued funding of its regional campaigns.
Outlook: Next Steps in a Fraught Relationship
Fakhr-Nezhad’s Baghdad trip demonstrates both the high stakes and the precariousness of the Iran-Iraq energy partnership. While short-term deals may provide temporary relief, the underlying issues—sanctions, dependency, and regional rivalries—remain unresolved. As Baghdad and Tehran negotiate under duress, the outcome will not only determine the fate of both economies but will also shape the security calculus for Israel and its allies as they confront the persistent threat posed by Iranian-backed terror groups and destabilizing regime policies.
