Mehran Haghirian and Osamah Alsayegh
Bourse & Bazaar Foundation
October 15, 2024
The October 9 agreement to finally connect Iraq to the Gulf Cooperation Council Interconnection Authority (GCCIA) marks a significant step toward greater energy integration in the region. Originally established to link the power grids of the six GCC states—Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE—the GCCIA has been gradually expanding its reach. Iraq’s inclusion in this regional grid highlights the growing importance of cross-border energy cooperation to address the rising electricity demands in the Gulf. Iraq’s existing energy ties with Iran, however, suggest that the region could be on the verge of an even more ambitious project: a Gulf-wide power grid that includes all eight Gulf states.
Energy demand in the Gulf has surged over the years, driven by rapid population growth, industrialization, and the region’s heavy reliance on energy-intensive processes such as water desalination. Between 2010 and 2023, the Gulf's population grew from 153 million to 194 million, with projections indicating it could exceed 300 million by 2050. This population boom has placed immense pressure on power generation systems, which remain dominated by fossil fuels. In 2022, electricity demand alone accounted for about 15% of the total energy consumed in the region, with per capita electricity consumption growing by 74% between 2000 and 2022. This rise in demand is largely the result of increased industrial and commercial activity, infrastructure development, and economic growth, all of which require significant amounts of electricity.
Moreover, most regions surrounding the Gulf experience extremely high temperatures during the summer months, often reaching 50°C. As a result, space cooling has become essential, further driving up electricity consumption. The scarcity of freshwater in the region also leads to heavy dependence on desalination, which is a highly energy-intensive process. Reverse osmosis, one of the commonly used desalination technologies, is particularly reliant on electricity for mass production. Additionally, Gulf governments have historically subsidized electricity, making it relatively cheap for consumers. While this has helped meet public demand, it has also encouraged inefficient consumption patterns.
As of 2023, the Gulf’s combined installed power capacity stood at 272 gigawatts, with 70.4% of electricity generated from natural gas, 25% from oil products, 2.2% from nuclear, 2.2% from renewables (hydro, solar, and wind), and 0.2% from coal. The residential and commercial sectors are the largest consumers of electricity in the Gulf, accounting for 40% and 30%, respectively. In contrast, the industrial and agriculture sectors make up 22% and 6%. In 2022, the total carbon emissions from electricity generation in the Gulf amounted to about 700 million tons, representing 38% of the region’s total energy-related carbon emissions.
Cross-border electricity trade has also become an important feature of the Gulf’s energy landscape to meet rising demand. Between 2016 and 2022, the accumulated electricity trade in the region amounted to 126.5 terawatt-hours (TWh). Notably, about 55% of this trade involved Iran, which exports electricity mainly to Iraq while importing from countries such as Armenia, Azerbaijan, and Turkmenistan. Iraq accounted for 40% of the region’s electricity trade, all of which was imported from Iran. The GCC countries accounted for the remaining 5%, exporting and importing electricity among themselves through the GCCIA grid.
Iraq, in particular, has struggled with chronic electricity shortages. Despite an installed generation capacity of around 29.4 GW, inefficiencies and under-maintenance have reduced Iraq’s available capacity to just 15.7 GW. In 2022, peak electricity demand reached 30.5 GW, nearly double the available capacity, leading to regular power outages. Iraq has long relied on electricity and natural gas imports from Iran to help meet its energy needs. In 2022, Iran exported 3.5 TWh of electricity to Iraq through four transmission lines, and the two countries signed a five-year agreement in 2023 to import 50 million cubic meters of Iranian gas per day. These imports have been especially crucial during the summer months when electricity demand peaks.
However, Iraq’s reliance on Iranian energy is complicated by US sanctions on Iran. Since the US withdrew from the Joint Comprehensive Plan of Action (JCPOA) in 2018, Iraq has received waivers to continue importing Iranian electricity and gas. Yet, delayed payments and mounting debt—estimated at $11 billion—pose significant challenges. Iraq spends about $4 billion annually on Iranian energy, but US sanctions have delayed the country’s ability to make timely payments, leading to substantial debt accumulation. To settle this debt, Iraq proposed an oil-for-gas barter deal in 2023, allowing it to repay Iran through crude oil. However, opposition from the US Congress and ongoing conflicts in the Middle East continue to hinder the smooth functioning of Iraq-Iran energy cooperation.
Iran itself faces significant domestic energy challenges, including infrastructure problems and environmental factors such as droughts that have reduced its hydroelectric output. In 2021, Iran faced a 12 GW gap between peak summer electricity demand and supply. These domestic issues highlight the potential benefits of integrating Iran into the broader GCCIA grid, which could help stabilize Iran’s power system while benefiting the region as a whole. Iran’s vast land area and renewable energy potential—particularly in solar and wind—could complement the Gulf’s energy needs. By connecting Iran to the GCC grid, the region could also better manage electricity demand across different time zones, as argued by Robin Mills, leveraging the 1.5-hour time difference between eastern Iran and western Saudi Arabia to extend the availability of solar power during peak hours.
The potential for a Gulf-wide energy grid that includes Iran, Iraq, and the six GCC states presents significant opportunities for enhancing energy security, sharing resources, and balancing electricity supply and demand across the region. However, significant challenges remain.
Expanding the GCCIA grid to include Iran would require substantial investment in infrastructure, including new transmission lines and modern grid management systems. Iran’s aging power infrastructure would need to be upgraded to ensure reliable connectivity with the Gulf states. Additionally, coordinating electricity markets and pricing across such a diverse group of countries would require careful negotiation and planning. Geopolitical tensions as well as US sanctions, pose other major obstacles to integrating Iran into the GCCIA grid.
Despite these challenges, a Gulf-wide grid could foster greater political and economic cooperation. Energy interdependence could reduce regional tensions and encourage collaboration on other critical issues, such as water security and climate change adaptation. The Gulf is particularly vulnerable to the effects of climate change, including extreme heat, water scarcity, and rising sea levels, all of which could destabilize power grids. Multilateral cooperation on energy could play a key role in mitigating these risks in the Gulf.
The agreement to connect Iraq to the GCCIA represents a turning point in the Gulf’s energy landscape, opening the door to broader regional cooperation. With regional diplomacy expanding between Iran and the Arab states of the Gulf, the possibility of integrating Iran into a Gulf-wide electricity grid becomes an increasingly tantalizing prospect.
Link to the article: https://www.bourseandbazaar.com/articles/2024/10/15/connecting-electrical-grids-in-the-gulf
Photo credit: Nirmal Dharshana, Pexels
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