Iran International
Two major energy agreements signed between US companies and the Kurdistan Regional Government (KRG) have sparked swift backlash from Baghdad and could undercut Iran’s long-standing economic and political grip on Iraq.
During a high-profile visit to Washington in May, KRG Prime Minister Masrour Barzani announced the deals with HKN Energy and WesternZagros, targeting development of the Miran and Topkhana-Kurdamir gas fields in the western part of the region near the Syrian border. Together, the projects are valued at $110 billion over their lifetime.
The US-KRG energy deals have sent a powerful message—both to Baghdad and to Tehran. If realized, they could shift Iraq’s energy independence and diminish Iran’s regional clout.
US Energy Secretary Chris Wright praised the deals at the Al-Monitor Global Institute in Washington on May 22, calling them “very aligned with President Trump’s agenda.”
He added, “We need Iraq and others off Iranian dependence.”
Secretary of State Marco Rubio met with Prime Minister Barzani in Washington on May 23. According to the State Department, the Secretary praised the energy agreements and reaffirmed US support for a strong and resilient Kurdistan Region within a sovereign and prosperous federal Iraq.
But analysts believe without a breakthrough in Baghdad-Erbil relations and tangible infrastructure investment, the deals remain aspirational—more of a political statement than a pipeline to regional transformation.
Iran’s gas grip at risk
Iran currently supplies around 25% of Iraq’s electricity needs through natural gas exports. Should the Kurdish projects proceed, that influence could be seriously eroded.
According to Iman Nasseri, Managing Director for the Middle East at FGE, Iran has little to gain financially from its gas exports to Iraq, and growing domestic shortages are shifting Tehran’s calculus.
He told Iran International, “They’re (Iraq) receiving gas for free because they have the excuse of not being able to pay due to US sanctions....Iran would welcome any scenario that could get Iraqis off the contract that they have signed with the Iranians [...] because they are short in natural gas at the moment."
Nasseri said that while the gas fields targeted by the US-KRG deals—estimated to hold 13 trillion cubic feet collectively—are indeed substantial, the main obstacles to their development have always been political and economic, not technical.
Strategic implications for Iran
Meanwhile, Baghdad swiftly denounced the agreements. Iraq’s Oil Ministry declared them “null and void." A senior Iraqi official told Reuters the central government had not been informed in advance.
KRG’s Ministry of Natural Resources defended the move, citing existing legal frameworks and long-standing contracts validated by Iraqi courts.
Energy analyst Dalga Khatinoglu told Iran International that the gas reserves in Iraqi Kurdistan—estimated at over 211.9 trillion cubic feet —are large enough to position the region as a major exporter to Turkey and Europe.
While Iran holds five times more gas, he warned, Tehran risks losing its most critical energy customers if the Kurdish fields come online.
“Iran earns $5 billion a year from gas exports to Iraq and Turkey,” Khatinoglu said, underscoring the threat to both revenue and regional influence. If Kurdish gas starts reaching Turkey and Europe, Iran not only loses market share—it loses geopolitical leverage.
US policy or political signal?
Ambassador John Craig, a former senior US diplomat, told Iran International the announcement may signal more of a “test” than a decisive turning point.
“The KRG is testing the water—to see how the Iranians react to it and how the US reacts to it,” he said, emphasizing that Iran “no longer has the punch” it once did following Israeli strikes that “took out all their munitions factories” and weakened Tehran’s regional leverage.
Craig is a former US ambassador to Oman under President Clinton and later served as director for the Middle East at the National Security Council under President George W. Bush.
He said that while the Kurdish leadership may see an opening to act more independently, the projects are far from being realized. “This is not going to happen in the next 10 months, no. It’s long term,” he said. “Exploration, production, development—it could take three to five years.”
Nasseri also described the deals as more symbolic than real, likening them to ‘wishful thinking’ without the conditions needed for execution. He emphasized that Kurdistan currently lacks a viable off-taker, adding, "you can’t develop gas without finding a place and an off-taker that can consume that gas.”
Among the additives is methyl tert-butyl ether (MTBE), a chemical known for its role in groundwater contamination and listed as a potential carcinogen.
Though banned or heavily restricted in numerous countries such as the US, MTBE is reportedly being used in substantial volumes—even in gasoline marketed under European emissions standards, such as Euro 4 and Euro 5.
Unacknowledged chemicals in ‘euro-standard’ fuel
The documents reviewed by IOD detail a system-wide reliance on off-site chemical additives to raise the octane rating of base gasoline. These include MTBE and aromatic octane boosters, which are not derived from conventional refining processes.
Iran’s Shazand refinery, the country’s largest producer of Euro-grade gasoline, blends approximately 350,000 liters of MTBE daily, while the Esfahan refinery adds 325,000 liters per day, according to the data. Both refineries label their fuel as Euro 4 or Euro 5 compliant.
The use of restricted additives contradicts environmental standards associated with the Euro classification, which are designed to reduce emissions and limit pollutants.
Production gap and fuel demand
Iran produced an average of 101 million liters of base gasoline per day in 2024, rising to 121 million liters per day after incorporating roughly 20 million liters of off-site additives. However, daily domestic demand stands at 123.5 million liters, leaving a shortfall of 2.5 million liters.
The shortfall, coupled with economic constraints and sanctions limiting imports and refinery upgrades, has prompted a quiet return to petrochemical-derived gasoline—first adopted during international sanctions in 2010.
Refining limitations and aging infrastructure
In spite of owning the world's second largest natural gas reserves, Iran’s refining infrastructure remains massively underdeveloped resulting from both sanctions and macroeconomic policies in Iran. No new refinery has been commissioned since 2017, and six of the ten major facilities predate the 1979 Islamic Revolution.
The Persian Gulf Star refinery, Iran’s largest by volume, produces 39 million liters/day, but none of its output qualifies for Euro-grade certification.
According to IOD, one-third of Iran’s gasoline is officially labeled Euro 4 or Euro 5, but internal documents indicate that even these fuels often contain high-risk chemical additives.
Health and environmental risks
MTBE is widely banned in Europe, the US, and other countries due to its high solubility in water and persistence in the environment. Even trace contamination of groundwater can lead to environmental damage and health risks for the population, making its use in consumer fuels controversial.
In 2014, a Tehran city health official warned that non-standard fuels could increase airborne benzene levels up to 35 times the safe limit.
A 2023 environmental review by Iranian authorities said that just 38% of gasoline met domestic quality standards. The IOD report suggests the problem has since worsened.
Iran maintains one of the world’s lowest gasoline prices—second only to Libya—due to heavy state subsidies, currency depreciation, and the impact of international sanctions.
Officials frequently cite low fuel prices as a driver of excessive consumption and cross-border smuggling, but attempts to increase prices have been shelved amid fears of social unrest.
The government has not publicly addressed the use of MTBE or other additives, and internal reports avoid naming specific chemicals, instead using general terms such as “aromatic octane boosters” or “off-site petrochemical inputs.”
Iran Open Data warns that Iran’s increasing dependence on petrochemical additives, without parallel investment in refining capacity, poses significant long-term risks to public health, environmental safety, and economic sustainability.
“The growing reliance on high-risk additives has become a cornerstone of fuel supply, in the absence of refinery upgrades,” the report said. “This strategy could carry severe health, environmental, and economic consequences.”
Officials from Iran’s Ministry of Petroleum and the Department of Environment did not immediately respond to requests for comment.
