Washington Wants Iraq’s Oil Again

However, This Time the Real War Is Over Iran, China, and the Pipe 

Blue Water Strategy 

 

 

 

The meetings between US President Trump and Iraqi Prime Minister Ali al-Zaidi should not be seen as just another ceremonial reset of US-Iraqi relations, as energy was not a side issue. As some had already expected, energy was the core of the emerging bargain. In light of normal Trump statements over the last few months, the US president again said that the United States would be doing “a lot of deals” with Iraq and taking “a lot of oil out.” These statements were again characteristically crude, but also strategically revealing, as Washington appears to have concluded that the battle for Iraq is not going to be won by the military anymore. The battles will now be fought with oilfield contracts, gas infrastructure, pipelines, dollars, and corporate balance sheets.

For Iraq, the timing of all is existential. Baghdad normally exports around 3.6 million bpd, of which around 3.4 million bpd moves through southern Basra terminals. At least, this was the case before the Iran-Hormuz crisis. Iraqi politicians are now facing a major shock, as the Hormuz crisis exposed via Gulf shipping a strategic vulnerability, which Baghdad almost totally ignored for years. Iraq, as one of the world’s largest oil reserve holders, is effectively trapped behind a maritime chokepoint it does not control. Due to the Iran-Hormuz crisis, Iraqi output has collapsed dramatically. OPEC data indicate that Iraq’s May 2026 production is around 1.48 million bpd, compared with almost 4.2 million bpd in February.

Here comes the reason for the Washington discussions. Even though the United States is not simply offering to drill more wells, it is now positioning American companies to become part of the architecture of a post-Hormuz Iraqi energy system. US giant Chevron is already linked to major upstream opportunities, while HKN Energy has secured the Hamrin field development, targeting around 140,000 bpd of oil and 40 million cfd of gas. US oilfield giant Halliburton has moved into field development work, while GE is increasingly linked to broader power infrastructure cooperation. In anticipation of possible US involvement, Baghdad has also been preparing regulatory and security measures, all designed specifically to facilitate entry for American companies.

Still, the most strategically important part is not an oilfield but the Trump Administration, which at present openly supports efforts to revive the Kirkuk-Baniyas pipeline. The latter pipeline will connect northern Iraqi production with Syria’s Mediterranean coast. This project will be part of efforts to increase Iraq’s direct strategic access to the Mediterranean and reduce dependence on the Strait of Hormuz. It is also argued that it would reconnect Iraqi energy strategy with Syria’s economic reconstruction while also creating a new US-influenced energy corridor across the northern Middle East.

This is energy geopolitics in its purest form.

Since the Saddam Hussein period, Washington’s Iraq policy was dominated by security. It was always linked to Saddam Hussein, weapons of mass destruction, insurgency, the Islamic State, and Iranian militias. However, since Trump came back to power and put in place a “Trump doctrine,” everything now seems more transactional. By the end of September 2026, American military forces are expected to complete their withdrawal. The latter will formally end a chapter of a military presence that began in 2003 and was renewed against the Islamic State in 2014. In contrast to the military, American companies, however, are expected to stay. The new strategy will be based on barrels, not on boots anymore. Whether it works is another question.

However, despite growing optimism about Iraq, the country is still not a normal investment destination. Al-Zaidi took office in May with only a partially completed cabinet after parliament failed to agree on nine ministerial positions, including the crucial interior and defense portfolios. The new PM is still facing a fragmented political system, endemic corruption, and heavily armed organizations linked to Iran. As promised, he is targeting the removal of the militias’ powers, pushing the idea that weapons should be held only by the state. Even the new PM still needs to get to grips with the fact that dismantling militia power is much easier to announce than implementing.

The militias are not merely military formations. They are political-economic networks, still holding vast influence over ministries, border crossings, construction, logistics, and parts of Iraq’s financial system. Washington, not only under Trump, has intensified pressure on Baghdad to restrict dollar flows to Iran and Iran-backed groups. Baghdad has agreed to tighter controls on currency channels in return for the resumption of dollar cash shipments previously disrupted during the Iran conflict. However, there is an uncomfortable reality, which states that Iraqi oil revenues remain deeply connected to the US financial system through arrangements involving the Federal Reserve Bank of New York. For the USA, this presents enormous leverage.

Trump’s oil statement therefore needs to be read alongside the dollar crackdown and the military withdrawal. Washington now effectively offers Baghdad a new relationship: economic access and American investment in return for greater financial transparency, reduced Iranian influence and improved security for Western capital. When looking from Tehran, this seems to be another step in a full-scale economic encirclement.

Iran has always viewed Iraq as strategic depth. Geography, religion, trade, energy interdependence, and militia networks have allowed Tehran to establish an influence structure that is much deeper than conventional diplomatic relations. Until now, Baghdad has always depended on Iranian gas and electricity supplies. This situation has given Iran’s leadership additional leverage over a chronically dysfunctional Iraqi power sector. The new American energy push is now challenging this model. Developing Iraqi gas is not simply about stopping flaring or generating electricity. It is an anti-Iranian strategy.

Iraq remains one of the world’s major gas-flaring countries. Russia, Iran, and Iraq together flared approximately 84 billion cubic meters of gas in 2025, nearly half of the global total. Capturing Iraqi associated gas and connecting it to domestic power generation will significantly reduce the need for Iranian energy imports while improving electricity supply. The reality is that every additional Iraqi gas processing plant has a geopolitical value beyond its financial return. Every megawatt generated from Iraqi gas weakens one small component of Tehran’s leverage.

The second challenge facing all is China. While Washington was debating troop deployments and sanctions, Beijing has sent all its companies to Iraq to embed themselves deeper into Iraq’s upstream sector quietly. Chinese independents have increasingly joined major Chinese state-backed operators, winning roughly half of Iraq’s exploration licenses awarded in the previous licensing round. By 2030, smaller Chinese operators aim to double their combined Iraqi production to around 500,000 bpd. This falls within the Iraqi national strategy, which is targeting production capacity above 6 million bpd by 2030. Baghdad is now even stating a level of 7 million bpd over the coming years.

China’s advantage is simple: Beijing has traditionally been less interested in Iraq’s political architecture than Washington. China wants access, acreage, barrels, and commercial power. They are often willing to operate in difficult political environments and can combine engineering, financing, and state relations. To Iraqi politics, this is extremely attractive, as Chinese capital does not arrive with public lectures about militia disarmament or dollar smuggling. Until now, US investments are.

This is the fundamental weakness in Washington’s emerging strategy. Washington does not hold the power to order US oil companies into Iraq. Chevron, ExxonMobil, Halliburton, and other American players ultimately need acceptable commercial returns, contractual security and protection of personnel and infrastructure. Iraq’s history of contract disputes, political interference and security risks remains problematic. For Iraq, the Chinese option is clearly there, as Chinese risk appetite is structurally different.

Washington will therefore have to offer more than political encouragement. Washington will need to decide to put in place support for project financing, export credit structures, political risk insurance, and infrastructure packages. It needs to be understood that the real competition with China will not be won by Trump saying American companies will “take oil out.” The USA only will make a real leap if American capital can provide a complete investment ecosystem linking upstream production to gas processing, electricity, pipelines, and export infrastructure.

Taking all in place, there is still another issue to be dealt with: OPEC. Iraq’s production capacity is estimated by the IEA at around 4.9 million bpd, more than 500,000 bpd above its July OPEC quota of 4.378 million bpd. At prevailing prices, that difference could represent roughly $36 million in lost revenue every day. Al-Zaidi used his Washington visit to pressure OPEC to demand a “fair share” within the group. Baghdad has previously signaled that it could consider all options if its quota is not increased.

All the above creates an obvious contradiction. Why would Iraq attract billions of dollars of American investment to increase production capacity if OPEC+ prevents it from producing the additional barrels? Still, you could argue that the Trump Administration may privately welcome that contradiction.

A more assertive Iraq inside OPEC would complicate Saudi and Russian attempts to manage supply. An Iraq pushing toward 6-7 million bpd would become a structural challenge to quota discipline. For the USA, the main power interest is clear; it is interesting if US companies hold significant positions in that growth, as Washington’s indirect commercial influence over one of OPEC’s largest producers will increase substantially.

The US-Iraq oil strategy is therefore much larger than bilateral trade. It potentially touches three American geopolitical objectives simultaneously: containing Iran, competing with China, and weakening the strategic importance of Hormuz.

In all cases, the revival of northern and western export corridors is particularly critical. Kirkuk-Baniyas, connections toward Turkey and potential infrastructure through Jordan, will no longer be assessed as secondary projects. The Hormuz crisis has changed their strategic valuation. Iraq cannot afford to have more than three million barrels per day of exports dependent on Basra and Gulf access. Washington plans to help Iraq build exits.

That may ultimately be the most important outcome of the Washington meeting. By offering Iraq an opportunity to transform itself from a politically fragmented oil producer trapped between Iran and the Gulf into a multi-corridor energy state connecting the Gulf, Turkey, Syria and potentially the Mediterranean, Washington takes a position, which could be powerful.

Still, infrastructure cannot solve political paralysis.

Al-Zaidi will need to control the militias. If not, American investment will remain cautious. If corruption continues to dominate procurement, Chinese operators will retain an advantage. Baghdad will also need to settle its internal disputes with Kurdistan; otherwise, northern export potential will remain politically constrained. Iraq also needs to end the practice of treating energy contracts primarily as instruments of political patronage. If Al-Zaidi is not able to, the 7 million bpd ambition will remain another number produced in Baghdad rather than barrels produced in Basra or Kirkuk.

Iraq is currently strategically available, a fact understood by Washington, especially as Iran is under unprecedented pressure. Baghdad also knows now that Iraq’s southern export model is not secure, as shown by the Hormuz crisis. Baghdad desperately needs revenue, while Chinese companies are moving aggressively into one of the world’s last great low-cost oil provinces. Now, Trump wants to have American companies re-enter the Iraqi oilfields.

The real question is whether Washington has arrived early enough.

Because the next battle for Iraq will not look like the one in 2003, it will not be linked to tanks, soldiers, or speeches about democracy; instead, the battlefield will be West Qurna, Hamrin, Kirkuk, associated gas plants, and pipelines running west toward the Mediterranean. Tehran will surely fight politically to retain Iraq. China will compete commercially to produce its oil. Washington now seems to be ready to do both.