Beneath Saudi officials’ tough talk on the Regional Headquarters Program lies a strong desire for constructive engagement with top global firms and attracting greater inflows of foreign investment.
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On February 2, President Joseph R. Biden Jr. spoke by phone with Iraq’s new prime minister, Mohammed al-Sudani, to discuss U.S.-Iraqi relations as well as the recent depreciation of the Iraqi dinar against the U.S. dollar. In November 2022, the Federal Reserve Bank of New York imposed tighter restrictions on transfers of dollars from Iraq’s foreign currency reserves due to concerns about money laundering and the smuggling of dollars to Iraq’s neighbors, particularly Iran. The process has reduced and slowed down transfers, leading to the devaluation of the Iraqi dinar, which has sparked anti-government protests in Baghdad.
With King Abdullah II of Jordan visiting Washington at the time, Biden took advantage of the opportunity to have him join the call with Sudani. King Abdullah emphasized Jordan’s support for Iraq, including through joint strategic infrastructure projects. One such project, the Basra-Aqaba oil pipeline, which has been stalled for nearly 10 years, is especially important for Jordan, as it would give the kingdom a reliable source of income, price stability, and energy security in the face of rising energy costs that have contributed to civil unrest.
The idea for the pipeline goes all the way back to 1983, when Saddam Hussein’s regime hoped to diversify its oil export channels after the Iran-Iraq War turned the Gulf into a flashpoint of conflict. However, preoccupied with the war and with government revenue consumed with the war effort, the regime wasn’t able to get the project off the ground. The project was resurrected in 2013, and Baghdad and Amman agreed to build the 1,040-mile pipeline at a cost of $18 billion, with feasibility studies to begin in 2014. However, the project, which also included a parallel gas pipeline, was hindered by political, security, and financial challenges, particularly the 2014 seizure of much of Anbar province by the Islamic State in Iraq and the Levant.
Iraq and Jordan revisited the project in 2017, agreeing to downgrade the ambitious project by dropping the gas pipeline and building the oil pipeline in two stages with offshore terminals, pumping stations, and storage tanks. The first stage was planned to span 435 miles from the Rumaila oil field to Haditha in western Anbar province and have a capacity of 2.25 million barrels per day. The second leg, which was set to run from Haditha to Aqaba, would be 560 miles long and capable of carrying 1 million barrels of oil per day, 150,000 of which could be sent to Jordan’s Zarqa refinery. The engineering, procurement, construction, and financing model is planned to be used to build the first line with the build, own, operate, and transfer model for the second. Under these approaches, neither Iraq nor Jordan would be expected to shoulder the project’s financial burden. Rather, the companies involved would recover their costs only after the pipeline goes online. But the question is whether such companies are ready to risk billions of dollars in the face of security and political uncertainty in Iraq.
Estimates of the project’s cost range from $3 billion to $18 billion. Eliminating the gas pipeline will undoubtedly lower the cost, but it won’t be possible to calculate even a rough estimate until a feasibility and financial analysis is completed. Moreover, it’s unclear if the Iraqi Ministry of Oil has looked at the bids made by two Iraqi firms and a joint partnership between the China Petroleum Pipeline Engineering Co. and Mass Group Holding, a Jordanian company, which filed to build the project in 2017. Such efforts to advance the project have continually run into resistance from pro-Iranian militias that have opposed building the pipeline, causing constant delays. Given such political and security challenges – and the high and widely varying costs estimated for the project – it will also be a significant challenge for a company to finance such a project and assume the risks for such financing. A company considering the build, operate, own, transfer model for a project of this nature would rely heavily on a feasibility study to reassure it that the investment made sense given the risks and potentially high costs. Despite the serious need for the project and the desire by the two countries to see it happen, the feasibility remains a huge, possibly fatal challenge.
If Iraq and Jordan are finally able to get the project off the ground, the pipeline could face serious security threats from pro-Iranian militias and the remnants of ISIL. Shia militias have a major presence in Anbar province and along Iraq’s Jordanian and Syrian borders. Although technologies such as drones could provide 24-hour surveillance of the pipeline, it must be secure from armed groups to be viable. And given the challenge of protecting such a long pipeline, it will likely face security threats and oil theft even if construction is finished.
Nevertheless, Iraq and Jordan would benefit greatly from the pipeline. It would provide Jordan with a reliable oil supply, reducing the risk of supply disruptions due to political instability. Additionally, the pipeline would reduce the environmental cost of transporting Iraqi oil, which is currently brought to Jordan by truck. With this in mind, Jordan recently decided to expand the refining capacity of its Zarqa facility from 60,000 barrels per day to 150,000 barrels per day by June 2025. As Jordan currently imports only 10,000 barrels of Iraqi oil per day, the pipeline alone can fully supply the refinery, satisfying domestic demand and enabling the kingdom to produce refined petroleum products and export them elsewhere, including to Iraq. Moreover, according to some estimates, the pipeline could bring Jordan between $500 million and $3 billion in revenue from transit fees each year; the latter would be a vast sum for a country with an annual budget of $15 billion. As skyrocketing energy and food prices have become the main source of social instability in Jordan, the kingdom views the pipeline – and the affordable energy it will provide – as key to domestic stability and has urged for the construction of the pipeline to be “expedited.”
For Iraq, while the pipeline would link its economy with those of its Arab neighbors, it will also diversify its export routes, mitigating the risks associated with the Gulf’s complex geopolitics. Therefore, the pipeline is a strategic project, with potential geopolitical advantages as well as economic benefits. Moreover, the pipeline could play a role in fostering stability in Iraq and throughout the region and help to stabilize global oil prices in the case of conflict in the Gulf.
Former Iraqi Prime Minister Mustafa al-Kadhimi approved the framework agreement for the pipeline in January 2022 as part of a broader recalibration of Baghdad’s regional strategy. However, three months later, under pressure from pro-Iranian political and militia groups, feasibility and technical studies for the proposed pipeline were halted again. Former Iraqi Prime Minister Nuri al-Maliki’s State of Law Coalition asserted that Kadhimi’s caretaker government lacked constitutional authority to decide on the project and should leave the decision to the next administration. Some critics also believe that the eventual destination of the proposed pipeline is Israel. Qais Khazali, the leader of the powerful Asaib Ahl al-Haq militia, said in 2022 that he refused “to extend the pipeline to feed Israel.” But Israel is not the only issue at play. In addition to being regarded as a close friend of the United States, Jordan is seen by Iranian-aligned groups as a shelter for Baathists who supported Saddam Hussein’s regime during the Iraq-Iran War and while Iraq was under United Nations sanctions in the 1990s. As a result, the project has become one of the most contentious political issues in Iraq. For Iran, the proposed pipeline could also reduce Tehran’s leverage over the strategic waterways of the Gulf. The threat of disrupting one of the most important shipping lanes for oil through the Strait of Hormuz has been a powerful coercive tool by Iran against Western countries. If Iraq could export oil via Jordan, that would reduce Tehran’s influence over the strategic Hormuz chokepoint.
There is little doubt that as the main benefactor of Sudani’s government, the Coordination Framework, a bloc of Shia parties that includes pro-Iranian militias and politicians, has enough political and military might to sabotage the project. But it also realizes that the stakes are very high. Thus, the Coordination Framework is cautious about speaking out against initiatives that will boost Iraq’s struggling economy, especially as the financial toll of the dinar’s recent devaluation has put the pro-Iranian government’s credibility as a governing force on the line.
Deep social and economic resentments brought on by the dinar’s free-fall have led to protests in Baghdad and other cities. The populist Shia cleric Muqtada al-Sadr, an opponent of the Coordination Framework with significant political and social capital, might exploit this discontent. If Iraq’s financial woes persist, Sadr’s supporters, coupled with general social dissatisfaction throughout the country, could sabotage government initiatives and topple Sudani’s government by forcing an early election. This is an outcome Iraq’s pro-Iranian organizations don’t want. Cognizant of this risk, the Coordination Framework has thrown its weight behind Sudani’s plan to support Iraq’s economic recovery and safeguard its financial stability.
The time is opportune for Baghdad and Amman to genuinely consider concrete actions to make the long-delayed pipeline a reality. If the depreciation of the Iraqi dinar helped pro-Iranian groups understand the political, economic, and social costs of their actions, Washington is in a good position to go even further by using its economic leverage to pressure the Iraqi government into completing the Basra-Aqaba pipeline. However, despite his newfound support for the pipeline, Sudani is aware that he must overcome opposition from the same organizations that put him in power. With the Federal Reserve’s new regulations on dollar transfers to Iraq, Washington has a powerful tool of leverage that it could use to try to neutralize resistance from some factions to start the project. The decline in the value of the dinar compelled the main factions, including strong anti-American groups, to endorse Sudani’s initiative to hold negotiations with the United States to stabilize the currency and stop the financial bleeding of Iraq. Continuous U.S. support for Jordan and Iraq and a willingness to use U.S. financial clout to remove obstacles standing in Sudani’s way could help jumpstart this ambitious project. In the end, however, the political, security, and financing challenges for the project will remain daunting even if the United States chooses – out of Iraq’s many priorities – to use its newfound leverage to press for this project to move forward.
is a non-resident fellow at the Arab Gulf States Institute in Washington and the Mustafa Barzani Scholar of Global Kurdish Studies at American University’s School of International Service. He is a TEDx speaker and former lecturer at the University of Kurdistan Hewler. He received his PhD from the Carter School for Peace and Conflict Resolution at George Mason University.
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