Dragoman Digest

Iraq energy crisis risk deepens amid US-Iran tensions

Iraq is urgently seeking to diversify energy supply away from Iran

The US has revoked Iraq’s exemption to import Iranian energy, throwing the country into a potential energy crisis. On 8 March, President Donald Trump rescinded the 2018 waiver that allowed Iraq to pay for Iranian electricity without incurring penalties under extraterritorial US sanctions. With 30 percent of Iraq’s electricity being sourced from Iran, power plants in the south are already experiencing shortages. This is not the first time in recent months that Iraq’s links with Iran have incurred a punitive US response. Last year, the US sanctioned six Iraqi banks with links to Iran’s financial networks. The Iraq Private Bank League said that this triggered a 20 percent decrease in dollar liquidity.

Iraq is pursuing both domestic and international solutions to ensure its energy security. Domestically, the country has long been advancing its energy infrastructure, including developing gas fields like Akkas and Mansuriya, expanding LNG import capacity, and modernising its power grid. After Trump’s announcement, Baghdad said it would prioritise the construction of an LNG terminal capable of handling 1.5 billion cubic feet per day in Basra. The facility is expected to come online in late 2025. Solar energy initiatives have also gained momentum, with the Ministry of Electricity announcing on 6 March that TotalEnergies has started construction on Iraq’s largest solar power plant, Shams Basra. This power plant is part of a US$27 billion project which includes the development of several oil and gas fields and a seawater desalination plant. On the international front, Iraq signed a deal to double its electricity imports from Turkey to 600MW on 16 March and is in ongoing negotiations with Algeria for gas imports. Replacing Iranian energy will not be cheap. The Iraqi Oil Ministry has suggested that doing so will require US$10 billion in energy and infrastructure investments.

Indonesia notches victory in quest to make Apple manufacture in country

Indonesia’s aggressive local content strategies may ultimately see investors shift to more business-friendly neighbours

Indonesia will lift a ban on Apple’s iPhone 16 after Apple suppliers agreed to open manufacturing facilities in country. In late February, Apple signed an agreement to invest US$320 million investment into Indonesia. This includes a US$150 million investment from Apple supplier Luxshare to open a factory in Indonesia that will produce 65 percent of the global AirTag tracking device supply. Apple itself will commit US$10 million in education and training.

The investment package means that the iPhone 16 will be eligible for an Indonesian local content certificate. This move comes after a lengthy standoff between Apple and Jakarta, stemming from Apple’s failure to meet Indonesia’s requirement that 40 percent of smartphone components be sourced locally. Indonesia’s ban on the sale of Apple’s iPhone 16 was first instituted in October 2024. Throughout the protracted negotiations, Jakarta rejected Apple’s various investment proposals, pushing Apple towards greater manufacturing..

This deal is reflective of a broader pattern of economic nationalism which may ultimately hinder Prime Minister Prabowo's goal to increase GDP growth from 5 percent to 8 percent. Indonesia, with its limited fiscal capacity, will rely heavily on foreign investment to achieve growth targets. Prabowo has set a target of US$803 billion in foreign investment between 2024-2029. The country has long employed protectionist and local content policies to stimulate onshore production which have been a source of grievance for business. A study released in November 2023 found that Indonesia had set 394 trade restrictions since 2015. In contrast, Vietnam only implemented 58 and is gaining recognition for its more investor-friendly policies. While this Apple deal represents an immediate political win for the Prabowo government, it may ultimately prove inimical to his quest to boost foreign investment.

Taiwan deploys semiconductor investment to secure US support amid abandonment fears

TSMC’s historic US$100 billion expansion reflects Taipei’s chip diplomacy as Trump-era anxieties intensify

On March 4, TSMC – the crown jewel of Taiwan’s semiconductor industry – announced plans to increase its US investments from US$65 billion to US$165 billion. The investment package, coming just days after President Trump’s live dressing down of Ukraine’s President Zelenskyy, was a calculated move to strengthen Taiwan’s standing in Washington. There are multiple drivers of Taiwan’s anxiety. These include Trump’s previous accusations that Taiwan “stole” the US semiconductor industry, his apparent willingness to abandon allies, and increasing pressure on Taiwan’s defence posture. On the latter, US officials like Trump’s Pentagon nominee Elbridge Colby are openly insisting that Taiwan should spend “more like 10 percent, or at least something in that ballpark” of GDP on defence, far above its current levels of around 3 percent.

When commenting on TSMC’s planned US investments, former lawmaker Lo Chih-cheng observed that “Taiwan’s strategic importance is much bigger than that of Ukraine” due to its central role in global chip chains. Whilst accurate, this strategy involves significant trade-offs. Transferring TSMC’s first-ever foreign R&D centre and sub-2 nanometre technology to Arizona could undermine Taiwan’s “silicon shield” – the longstanding belief that American dependence on Taiwanese chip manufacturing will make the US much more likely to deter Chinese aggression. This has intensified opposition to TSMC’s expansion domestically, with 85 percent of Taiwanese opposing TSMC building overseas fabs capable of producing these frontier chips.

Beyond semiconductors, Taiwan is pursuing multiple avenues to secure US support. This includes working on a US$10 billion arms procurement package and potentially increasing US liquefied natural gas purchases from 9.5 percent to 25 percent of total imports. There is growing recognition that these measures may ultimately be insufficient. One Taiwanese industry leader grimly speculated: “Who knows what Trump will do once he negotiates with Xi Jinping? He could say: ‘If you balance our $295bn trade deficit, we’ll give you Taiwan.’”

China retains its spot as Vietnam’s largest investor

Burgeoning US-China trade war may hinder Vietnam’s capacity to play both sides

Chinese companies are increasing investment in Vietnam, amplifying the country’s exposure to potential US trade pressures. China accounted for 28 percent of all new investment in 2024, up from 22 percent in 2023. Chinese firms are increasingly shifting production to Vietnam to sidestep US tariffs. Circumventing US tariffs takes a variety of forms. There is a spectrum of Chinese industrial activities in Vietnam, ranging from more locally integrated operations to entirely assembly-based operations.  In extreme cases, Chinese companies are illegally engaging in trans-shipment, whereby entirely Chinese-made goods are routed through Vietnam to falsely claim a “Made in Vietnam” label. Although China +1 strategies are commonly associated with Western, Japanese and Korean companies, Chinese companies are actually some of the most active proponents of this strategy. 

China’s growing footprint in Vietnam exacerbates its vulnerability to US trade tactics. Vietnam maintains the third-largest trade surplus with the US, reaching a record US$123.5 billion in 2024. President Donald Trump’s fixation with closing the US trade deficit indicates he will eventually turn his attention to Vietnam. With nearly 30 percent of Vietnam’s exports travelling to the US, Vietnam is vulnerable. China’s increasing investment and trade with Vietnam feeds the perception, whether accurate or not, that Vietnamese exports to the US are essentially Chinese.

Recognising these risks, Vietnam is employing multiple strategies to minimise its risk.  Prime Minister Pham Minh Chinh hinted at policies that will encourage Chinese firms to invest in higher-value manufacturing featuring more Vietnamese-made components and materials. Vietnam has already increased due diligence on Chinese products, cracking down on the use of trans-shipment. In further efforts to mitigate US tensions, Trade Minister Nguyen Hong Dien has outlined plans to increase US agricultural imports and acquire 50 to 100 Boeing planes over the next decade, which will at least temporarily contribute to closing the trade surplus