The Donald Trump administration has declined to renew a sanctions waiver for Iraq's electricity imports from Iran, raising the spectre of a power crisis in Baghdad. Part of Trump’s "maximum pressure" policy towards the Islamic Republic—and with the Iraqi banking sector also seemingly in Washington’s crosshairs—the move has stoked fears that the fallout could reverse Iraq’s delicate economic and security gains, particularly in an election year.

Although electricity imports meet only a minor portion of Iraqi consumption, a potential US move to also target Iranian...