Russian Oil Companies’ Withdrawal from Iraq

The steady retreat of Russian oil companies from Iraq, compelled in part by United States sanctions and the increasing difficulty of operating within a dollar-dominated global energy market, represents a subtle but meaningful rebalancing of power in the Middle East. Russia’s engagement in Iraq has always been shaped by wider strategic competition with Washington, and the recent US sanctions pressure upon Russian firms such as Lukoil and Gazprom Neft to divest assets has accelerated a shift that will reverberate well beyond Iraq’s borders. The consequences are not merely commercial. They illuminate the evolving structure of influence in the region, the fragility of Iraq’s political economy, and the constraints faced by a sanctioned power seeking to maintain relevance in the Middle East.

Russia’s return to the Iraqi energy sector after 2003 was never straightforward. Moscow’s historic ties to Baghdad, particularly during the later decades of the Ba’ath regime under Saddam Hussein, did not automatically translate into post-invasion opportunities. Yet over time Russian companies gained footholds, often in fields requiring substantial capital investment and technical risk-taking. Lukoil’s involvement in the giant West Qurna-2 field, and Gazprom Neft’s activities in Kurdistan, symbolised a diversification of Iraq’s energy partnerships away from an overwhelming dependence upon Western and Gulf state companies. This presence also afforded Moscow a degree of political leverage, enabling the Kremlin to present itself as a pragmatic actor able to deal with Baghdad and Erbil alike, even as relations between the two remained fraught.

The imposition of sectoral and financial sanctions upon Russia following the annexation of Crimea in 2014, and their dramatic expansion after the full-scale invasion of Ukraine in 2022, progressively eroded the economic viability of Russian operations overseas. Equipment procurement became more complicated, Western service firms were no longer willing to cooperate, and the financing of capital expenditure in hard currency grew increasingly arduous. Moreover the political risk of secondary sanctions discouraged intermediaries and local partners. Forced divestment by Russian companies in Iraq is therefore not a sudden rupture, but the culmination of a decade-long tightening of constraints; nevertheless, its geopolitical effects are significant.

For Iraq, the departure of Russian firms presents both an opportunity and a challenge. On the one hand, Baghdad gains the chance to reassign valuable assets to companies with greater access to global finance and technology. This may accelerate production if competent operators step in, enabling Iraq to shore up revenues at a time when its fiscal stability remains fragile. Moreover the departure of Russian capital aligns Iraq more closely with Western and Gulf preferences, reducing the awkward balancing act successive Iraqi governments have performed between Washington, Moscow and Tehran. In geopolitical terms, Iraq’s energy sector may begin to tilt more visibly towards partners favoured by the United States and its allies, reinforcing the country’s slow and uneven drift back into the Western diplomatic orbit.

On the other hand Russian companies have sometimes been willing to assume risks that Western operators prefer to avoid. Their divestment may therefore leave certain fields in limbo, especially in politically sensitive areas such as the Kurdistan Region, where contractual disputes between Erbil and Baghdad have discouraged new investors. Russian firms previously acted as a counterweight to Turkish and Gulf influence in the Kurdish upstream sector; their withdrawal may consolidate Ankara’s role, particularly as Turkey seeks to secure energy corridors and deepen her economic footprint across northern Iraq. In this sense, Russia’s retreat indirectly strengthens Turkish leverage at a moment when Ankara is increasingly assertive in the region’s security and economic affairs.

The wider regional implications are no less significant. Russia has used economic presence in the Middle East to underpin diplomatic relationships from Syria to the Gulf. Her energy investments in Iraq formed part of a broader strategy to present herself as a power capable of engaging across the region independently of Washington. Forced divestment weakens this narrative. Although Russia retains military influence in Syria and continues to court Iran, its credibility as an economic partner in the Arab world is diminished. The wealthy Gulf monarchies, which have maintained functional if strained relations with Moscow since 2022, will observe that Russian capital is less dependable than they might once have hoped.

For the United States, the trend is strategically favourable. Sanctions that dissuade Russian companies from maintaining overseas assets demonstrate the reach of American financial power, reinforcing the lesson that the dollar system remains central to global energy commerce. Reducing Russia’s footprint in Iraq also constrains Moscow’s ability to cultivate influence within a state that Washington still seeks, albeit inconsistently, to stabilise. Yet this outcome is not without risk. If Russian withdrawal is followed by expanded Chinese investment, particularly through state-owned giants with access to sovereign financing, then the vacuum left by Moscow may simply be filled by Beijing. China has already become Iraq’s largest trading partner and a major purchaser of her oil. The strategic effect would therefore be a substitution of one rival for another, although Beijing’s approach tends to be more commercially driven and less overtly geopolitical than Moscow’s.

Iran, too, will assess the situation with mixed feelings. The weakening of Russia as an economic actor in Iraq could, on one interpretation, allow Iranian-linked networks greater freedom. Yet Tehran values Moscow’s diplomatic and military partnership, and a diminished Russia is not necessarily in Iran’s long-term interest. Moreover Iranian companies lack the resources to take over complex energy projects, and therefore the practical impact of Russia’s withdrawal upon Iranian influence may be limited. Sanctions on Iran are even tighter than on Russia

For Russia herself, the loss of Iraqi assets underscores the strategic costs of geopolitical isolation. A great power that cannot operate freely in global energy markets finds her influence shrinking even in domains where she has traditionally been strong. The Kremlin may seek to portray divestment as a pragmatic business decision, but the underlying reality is that a sanctioned economy cannot sustain overseas investment on the scale required to maintain political leverage. As Iraq shifts towards other partners, Russia risks being confined to a narrower set of relationships with fewer economic anchors.

The broader geopolitical consequence is a subtle acceleration of the Middle East’s realignment. Iraq, though often overlooked amidst the region’s more dramatic crises, remains central to the balance of power between Turkey, Iran and the Arab world. As Russian companies retreat under American pressure, the space they once occupied will be redistributed amongst these actors and, potentially, to China. Washington may welcome this shift, but must manage the outcome carefully to avoid inadvertently strengthening other rivals.

The divestment of Russian oil interests in Iraq is more than a financial adjustment. It is an emblem of the changing architecture of global energy politics, where sanctions reshape the strategic reach of major powers and where Iraq, still struggling to define her post-war identity, becomes a theatre in which external influences are realigned. The long-term effect will be a Middle Eastern energy landscape in which Russia plays a diminished role, and in which the competition between American, Chinese, Turkish and Iranian interests becomes sharper, more complex and more consequential for the region’s future order.