Iran's energy exports to Iraq sag amid US sanctions
Iran’s natural gas exports to neighboring Iraq have fallen sharply over the past five months after US sanctions which long exempted the trade take hold.
Iran’s natural gas exports to neighboring Iraq have fallen sharply over the past five months after US sanctions which long exempted the trade take hold.
Between April and August 2025, exports dropped by 40%, continuing a downward trend that began in 2024, according to financial intelligence platform Zawya.
“Iran’s exports to Iraq in the first five months of this year decreased by 18% compared to the same period last year, with a significant portion of the decline due to gas exports,” Abdulamir Rabihavi, Director General of the West Asia Office at Iran’s Trade Promotion Organization, said on September 15.
“In the first five months of last year, we exported around $1.6 billion worth of gas to Iraq, but this has fallen to $950 million this year," he was quoted as saying by Iran's Etemad newspaper.
Iraq’s imports have been constrained by stepped-up United States sanctions. In March 2025, the Trump administration revoked a waiver that allowed payments for Iranian electricity imports as a long-standing carve out to broad US sanctions on Tehran.
Baghdad seeks to diversify supplies by launching a new gas import line from Turkmenistan. However, because the pipeline runs through Iran, it remains subject to US sanctions, and Washington has refused to grant Iraq a waiver.
“The entry of new competitors and possible shifts in Iraq’s market require constant monitoring and preparedness by economic actors,” Etemad newspaper quoted Yahya Al-Ishaq, President of the Iran-Iraq Chamber of Commerce, as saying.
Hamid Hosseini, a member of the Iran Chamber of Commerce, noted: “One of Iraq’s main policies in recent years has been to support domestic production. The government regularly raises import tariffs, sometimes up to 36%.”
Despite holding vast natural gas reserves, Iraq lacks the infrastructure to fully utilize them and continues to depend on imports.
The country does not have enough refineries to process associated gas from its oil fields and still flares a large portion of it.
The US maximum pressure campaign on Iran, reinstated by President Trump in February 2025 via a National Security Presidential Memorandum, aims to deny Tehran nuclear weapon paths and counter its regional influence through sweeping sanctions on its energy sector, including oil exports targeted at zero.
The policy has blocked waivers for third-country energy deals involving Iran, directly curtailing Tehran's gas and electricity flows to Iraq and exacerbating domestic shortages.
“Economic growth requires prerequisites such as a favorable business environment, sound economic governance, access to technology and adequate financing. Each of these can be likened to an engine powering growth. The problem is that none of these engines are running,” wrote the paper, which covers industry, mining and trade.
According to the report, the government’s latest decree estimates Iran would need nearly 80 quadrillion rials (about $80 billion) in combined private, public and cooperative investment in the current Iranian year (started on March 21) to hit the 8% target, factoring in capital depreciation, labor contributions and productivity gains. Current financing plans leave a shortfall of about 27.9 quadrillion rials (about $28 billion).
The report listed funding sources ranging from banks and capital markets to foreign investment, the sovereign wealth fund and private savings. But it warned that reliance on public budgets and banks alone is insufficient.
Economist Vahid Shaghaghi-Shahri told the paper: “At present all our engines of economic growth have not only stalled but are working in reverse. In this context, even preventing negative growth should be considered an achievement.”
He cited housing, oil revenues and productivity as sectors in decline, while financial channels needed to supply about $200 billion annually are blocked by sanctions, low investor confidence and structural weaknesses.
Another economist, Mehdi Pazouki, argued that “without economic health no rational investor will commit to Iran.”
He said previous development programs had all set 8% growth targets that were never achieved. “When energy shortages restrict production and the business climate is hostile, such a goal is at best rhetorical,” he told the paper.
Both experts stressed the need for international engagement and domestic reforms. Pazouki said: “For meaningful growth we must first restore international relations and improve the business environment. Otherwise, capital will continue to flow abroad instead of into domestic industry.”
The report comes amid starkly different official data. Iran’s Central Bank recently announced growth of more than 3% in 2024, comparing Iran favorably to the US and eurozone, while the IMF in May projected growth of just 0.3% this year with inflation topping 43%.
Independent analysts say power shortages, a plunging rial and tighter US sanctions have pushed the economy toward stagnation.
Shaghaghi warned that unless Iran activates its “engines of growth,” negative GDP growth could emerge as early as 2026. “It is better to set realistic goals in line with our economic conditions and avoid rhetorical targets,” he said.
“Turning education into a commodity has deprived many working-class children of their right to study,” labor activist Maziar Gilaninejad told labor news outlet ILNA.
He cited official figures and media reports showing steep increases in school-related expenses, including a 30% rise in stationery prices, costs of about 3.5 million rials (about $35) for basic supplies for one elementary student, and reports of 750,000 children leaving school due to poverty.
He added that the result is “a direct link” between rising dropouts and the growth in child labor, with many minors pushed into hazardous workshops to support their families.
“The reality is families need their children’s wages as much as they cannot afford school fees,” he said.
Parents have echoed the concerns. Earlier this month, Iran International reported that families are often asked to pay “voluntary” enrollment fees or provide unpaid labor, such as cleaning classrooms, to secure places for their children. In some cases, schools have withheld report cards until payments were made.
University tuition has also surged, with students reporting fees doubling at some institutions in recent semesters.
“Education is becoming an exclusive path for the wealthy,” Gilaninejad said, citing data that the top 3,000 scorers in this year’s university entrance exam came almost entirely from affluent families.
Article 30 of Iran’s constitution guarantees free education, but Iran spends just 2.93% of GDP on education, well below the global average of 4.4%, according to the Global Economy data service.
Gilaninejad said neglecting this obligation risks producing “a generation systematically sidelined from opportunity” and perpetuating cycles of poverty.