Who’s Playing Who in the Great Iraq Carve-Up?

There have been two major announcements in Iraq’s oil and gas sector in recent days that could only add to the general malaise felt by those who are often afflicted with cognitive dissonance when looking at the country. On the one hand, Chinese firms again won most of the 13 contracts for oil fields and exploration blocks awarded by Iraq’s Ministry of Petroleum in the latest round of tenders held on the 11th.^th at 13^th from May. When fully developed, they will add 750,000 barrels per day (bpd) of oil and 850 million cubic feet per day (MMcf/d) of gas to the country’s production. This is consistent with China’s continued attempts to seize control of these Iraqi assets and also its political and economic future, as discussed in depth in my latest book on the new global oil market order . On the other hand, the US and its key allies have tried to prevent this project of Beijing’s power grab, mainly by concluding other oil and gas deals in the country, whenever possible, by key firms associated with West. Most notably of all, perhaps, this included the $27 billion four-pronged deal led by France’s TotalEnergies. With these two factors in mind, then, last week’s announcement that China Energy Engineering Corporation (CEEC) will work with the French firm to launch the 1 gigawatt solar power project at Basra’s Artawi field – a key element of the TotalEnergies Megabid – was at least a surprise. So what the hell is going on?

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On the Chinese side, many of the major oil and gas companies were among the most recent contract winners. These included China National Offshore Oil Corporation (CNOOC) for block 7, ZPEC for the East Baghdad and Middle Furat oil fields (and the Qurnain and Abu Khaima blocks), Geo-Jade for the Zurbatiya and Jebel Sanam blocks, Sinopec for the Anton summer Oil for the Al-Dhifriya oil field and Hong Kong UEG for the Fao Block. Even before this latest awards extravaganza, more than a third of all of Iraq’s proven oil and gas reserves and more than two-thirds of its current production were managed by Chinese companies, according to industry figures. This degree of dominance has long been Beijing’s plan once the US formally ends its combat mission in the country at the end of 2021, and to that end, China’s Zhenhua Oil has signed an oil supply agreement for a fee anticipated five-year US$2 billion with the Federal Government of Iraq (FGI) in Baghdad during that period. This deal mirrored the exact same type of agreement Russia made in the Kurdistan Region of Iraq (KRI) after the failure of the independence referendum in late 2017, which gave Moscow effective control over all of the KRI’s oil and gas assets.

Although the US still had enough power to lean on Baghdad to prevent the deal, China then proceeded to extend the terms from 2019.Oil for reconstruction and investment’ deal with Iraq in 2021 much broader and deeper “Iraq-China Framework Agreement”as detailed in my latest book on the new global oil market order. One element was a preference given to Chinese firms for all future oil and gas contracts for sites in which Beijing had an interest, and another element was reduced Iraqi oil and gas prices for Beijing. But the 2021 deal went much further than oil and gas, allowing China great scope to build corollary infrastructure across the country. A notable example was the 2021 awarding of contracts to China to build a civilian airport to replace the military base in the capital of the oil-rich Dhi Qar governorate in the south. This region includes two of Iraq’s largest potential oil fields – Gharraf and Nassiriya – and China has said it plans to complete the airport by 2024. This project will include the construction of several cargo buildings and roads connecting the airport to the city center and separately. to other key oil areas in southern Iraq. In subsequent discussions related to the 2021 Agreement, it was decided that the airport could later be expanded to become a dual-use civilian and military airport. The military component could be used by China without having to first consult with whatever Iraqi government was in power at the time. Even more has sprung from this evergreen deal for China in the form of plans to tie Iraq’s $17 billion Strategic Development Road (SDR) program directly into the “Belt and Road Initiative” (BRI ) of China. This effectively allows the free movement of goods and people from China to Europe in Iraq and can connect to both Iran’s much-sought-after “Land Bridge” to the Mediterranean and the “Russia-Iran Energy Corridor”.

About the only thing that hasn’t gone Beijing’s way in Iraq since late 2021 has been the $27 billion four-layer TotalEnergies deal. One of the key projects is the Common Seawater Supply Project (CSSP), which is essential to enable Iraq to dramatically increase its crude oil production to 6 million barrels per day (bpd), or 9 million barrels per day, or even 13 million barrels per day. also fully analyzed in my latest book on the new global oil market order. The project was delayed for over a decade as US company ExxonMobil and China National Petroleum Corporation (CNPC) battled for control until eventually the US firm withdrew and CNPC made no substantial progress, allowing TotalEnergies to take over the contract. The project involves taking and treating seawater from the Persian Gulf and then transporting it through pipelines to oil production facilities to maintain pressure in oil reservoirs to optimize field longevity and production. The initial plan for the CSSP is to initially supply approximately 6 million bpd of water to at least five fields in southern Basra and one in Maysan province and then be expanded for use in other fields.

A second major project is for the French firm to collect and refine the associated gases that are currently flared during oil drilling at the five oil fields in southern Iraq, West Qurna 2, Majnoon, Tuba, Luhais and Artawi. For the West, the key advantage of this would be to reduce Iraq’s long-standing dependence on neighboring Iran for up to 40 percent of its energy supply through gas and electricity imports. This would be a good start in creating a wedge – albeit a thin one to begin with – between the two countries, which could be further exploited to undermine the regional influence of the Shiite Crescent of power. This could then be used to impede Iran’s continued efforts to build its Land Bridge, which would then be used by Tehran to increase arms shipments to its militant proxies for use against Israel.

TotalEnergies already has ongoing experience working in Iraq, holding a 22.5% stake in the Halfaya oil field in the southern Missan province and an 18% stake in the Sarsang exploration block in the semi-autonomous Kurdistan region in the north. This gives him very specific operational experience working on the ground in Iraq, which would also allow him to increase crude oil production from the Artawi oil field, which is the third of four projects he is engaged on. According to previous comments by Iraq’s Ministry of Oil, TotalEnergies would help increase production from the Artawi oil field to 210,000 bpd of crude oil, up from the current around 85,000 bpd. The last of the four projects to be undertaken by the French company would be the construction and operation of a 1 gigawatt solar power plant in Iraq.

Therefore, China’s commitment to help with both the Artawi and solar projects may mark an extension of a new Western tactic of cooperation between the two sides in Iraq, at least as long as it will be beneficial. It is pertinent to note that shortly before this cooperation was announced between the French and Chinese firms, UK’s BP signed a preliminary agreement to rehabilitate and develop four fields in the highly oil-rich Kirkuk region of the sensitive northern region from the political point of view of Iraq. “The policy of antagonism between West and East in Iraq has not benefited us (the West) there (in Iraq), so a change of tack is wise at this time,” concluded a senior European Union energy security source , with whom he spoke exclusively. OilPrice.com last week.

By Simon Watkins for Oilprice.com

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