On March 8, the United States allowed a waiver to expire that had permitted Iraq to buy Iranian electricity. The move was the latest in the Trump administration’s “maximum pressure” campaign to cut off Iran’s revenue streams and push Tehran to negotiate over its controversial nuclear program. The waiver dates back to President Trump’s first term. In 2018, Trump withdrew the U.S. from the 2015 Iran nuclear deal, which had granted Iran sanctions relief in return for curbing its nuclear program and expanding cooperation with the U.N. nuclear watchdog.
After exiting the deal, Trump reimposed sanctions on Iran as part of his first maximum pressure campaign. But Washington granted waivers to several countries, including Iraq, to allow them time to wean off Iranian energy. Under both the Trump and Biden administrations, the U.S. repeatedly renewed the waiver for Iraq while encouraging it to become self-sufficient.
USIP’s Sarhang Hamasaeed and Garrett Nada discuss the implications for Iraq, Iran and their relationships with the United States.
How does the administration’s decision to end the waiver play into its overall Iran policy?
Nada: Ending the waiver is just one part of President Trump’s maximum pressure campaign against Iran. On February 4, he signed a memorandum directing U.S. officials to deny Tehran all paths to a nuclear weapon and counter the regime’s malign influence in the Middle East. It specified several methods, including imposing new economic sanctions and rescinding waivers that “provide Iran any degree of economic or financial relief.”
Imposing new economic sanctions — and tighter enforcement of existing ones — is a key part of the U.S. strategy to bring Iran to the negotiating table. The goal is to “collapse its already buckling economy,” according to Treasury Secretary Scott Bessent.
Trump has repeatedly expressed his preference for diplomacy over military action to stop Iran’s nuclear program. “There are two ways Iran can be handled: militarily, or you make a deal,” he told Fox News on March 7. “I would prefer to make a deal, because I’m not looking to hurt Iran.”
Iranian officials have mixed views on engagement with United States, but Supreme Leader Ayatollah Ali Khamenei has come out against talks with Washington. After President Trump later revealed that he wrote a letter to the supreme leader encouraging negotiations, Khamenei still was not persuaded. Although he did not explicitly mention the United States, Khamenei said that “their negotiations are not aimed at solving issues, but to dominate and impose their own expectations.”
How has Tehran responded? How might the end of the waiver impact Iran’s economy and energy sector?
Nada: Iranian Foreign Minister Seyyed Abbas Araghchi condemned the U.S. move. “It is extremely deplorable that the US administration has decided to target the innocent people of Iraq by attempting to deprive them of access to basic services such as electricity, especially ahead of the coming hot months of the year,” he posted on X.
The end of electricity sales to Iraq will cause some harm to Iran’s economy. But it is already reeling from years of U.S. economic sanctions, corruption and state mismanagement. On March 2, lawmakers impeached the economy minister, Abdolnaser Hemmati, for failing to deal with rising inflation, some 35 percent, and the plummeting value of the rial, the national currency. In July 2024, when President Masoud Pezeshkian took office, one U.S. dollar was fetching 600,000 rials on the open market. By March, one dollar was trading for 950,000 rials.
Iran, however, was only providing about four percent of Iraq’s electricity as of 2023, according to the U.S. Embassy in Iraq. The bigger question is whether the United States will eventually direct Iraq to stop importing Iranian natural gas. Iraq reportedly imports some $3 billion worth of gas annually that fuel power plants. Cutting Iranian gas “would cause Iraq to lose more than 30 percent of its electricity energy,” warned a spokesperson for Iraq’s Ministry of Electricity, Ahmad Moussa.
Regardless of U.S. policy, Iran may not have much gas to sell to Iraq going forward anyway. Iran will face a 25,000-megawatt electricity deficit in the coming Iranian year, which starts on March 21, according to the chairman of Iran’s power plant association.
Iran has the world’s second-largest natural gas reserves but struggles to meet peak demand for electricity during frigid winters and sweltering summers. Generous government subsidies lead to overconsumption, which further tax aging infrastructure.
Since fall 2024, life in Iran has been disrupted by both planned and spontaneous power outages that have frequently shuttered government offices, schools, banks, factories and businesses across the country. Summer 2025 is expected to be an inflection point. In both Iran and Iraq, temperatures can surpass 122 degrees in the summer. Ending direct electricity supply to Iraq may only free up 500 megawatts for Iran’s grid, not nearly enough to make up for the domestic shortfall.
How might the expiration of the waiver impact Iraq's energy situation, economy, and domestic politics?
Hamasaeed: Assessments of the expiration of the waivers on Iraq’s energy situation differ, ranging from a major impact to a relatively small one. It could have a negative impact in the short term, but positive in the long term because it would mean some movement toward Iraqi energy independence or at least diversification.
Given the drop in Iran’s supply of energy to Iraq in prior months, it’s estimated that the waiver expiration would end electricity imports from Iran, which amount to four percent of Iraq’s energy consumption. The amount may seem small, but given the power supply deficit Iraq is facing, even a small cut could have outsized impact as temperatures literally rise heading into the hot summer season and figuratively rise ahead of upcoming national elections in the fall.
Power supply is critical not only for addressing the daily needs of citizens, but also for developing the country and growing its economy. Iraq has steadily increased its power generation and independence, but it continues to fall short of increasing demand due to population growth (now at 46 million from about 25 million in 2003), more household and office equipment (like air conditions and other electric appliances), and governance challenges, especially corruption.
In prior years, Iraqis protested shortages in power supply and bad services. Public dissatisfaction with governance, unemployment and lack of services led to the 2019 youth-led protest movement and most Iraqis boycotting recent elections. Prime Minister Mohammed Shia Al-Sudani’s government prides itself as being the “government of services” and many Iraqis recognize progress made, even if it’s not nearly sufficient for what the people need.
This gap in expectations, election year competition and any adverse fallout from the evolving situation in Syria provide ingredients for social unrest and instability. Domestic politicization of power shortages would be the biggest risk. However, Iraq also has important elements of resilience — for example, broad common interest in preventing violence, the religious establishment in Najaf and financial resources — to help it weather the storm.
What are the implications for Iraq’s relationship with the United States?
Hamasaeed: It was no surprise that Trump administration ended the waivers as it resumed the maximum pressure campaign on Iran, especially since Iraq has had enough time and possesses the financial resources to end its reliance on Iranian energy. The U.S. and Iraq are working through diplomatic and other institutional channels to ensure compliance with U.S. policy. Meanwhile, both sides are taking into consideration the complex dynamics Iraq is facing and recognizing the progress it has made in increasing domestic production of energy and diversifying its power supply sources, including from regional countries like Jordan and Saudi Arabia. Iraq reports reducing flared gas that is burnt during oil production to 67 percent and plans to reach 80 percent by the end of 2026. The recovered gas could be used to increase electricity production and replace gas imported from Iran.
U.S. Secretary of State Marco Rubio and National Security Advisor Mike Waltz spoke with Al-Sudani before and after the waivers expired. These engagements are positive indicators that senior leaders on both sides value the bilateral relationship and are pursuing collaboration on broader partnership.
During the first Trump administration, the U.S. mostly viewed Iraq through the lens of countering ISIS and Iran and considered closing its embassy in Baghdad after armed groups attacked U.S. interests and bilateral relations deteriorated. A key part of the Biden administration’s regional strategy was strengthening Iraq and advancing its regional integration. The U.S. and Iraq have collaborated to maintain pressure on ISIS remnants and repatriate Iraqis from Al-Hol camp in Syria. But Iran and its allies remain a contentious obstacle in the relationship, especially in the context of the Gaza War.
Iraq relied on the U.S. to prevent Israeli retaliation against Iraq after Iran-backed groups that are part of the axis of resistance attacked Israel from Iraqi soil. Iraq hopes to maintain that support and find ways to advance relations with the U.S. in the economic sphere. Progress on the energy issue could lay a good foundation for navigating the thornier issue of Iran’s broader influence in Iraq, especially the armed groups it is backing.
China’s rising economic role in Iraq and the region, among other issues, may also challenge U.S.-Iraq relations. Washington and Baghdad shouldn’t let the challenges posed by those issues define the relationship. Instead, it's important for both countries to work on a positive agenda in both bilaterial relations and multilateral cooperation on regional issues like Syria and global issues like energy.