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Iraq Forges Ahead On Greater Integration With China

  • ‘Iraq-China Framework Agreement’ signed in December 2021, will enable China to complete its long-term strategy of sequestrating all of Iraq’s key oil, gas, and petrochemical assets to its own ends, as it sees fit.
  • Using Russia’s playbook from Kurdistan, China at the beginning of 2021 firstly used state proxy, Zhenhua Oil, to agree a US$2 billion five–year prepayment oil supply deal.
  • It is entirely legal for oil companies to deploy whatever security forces they think necessary to protect their valuable assets on the ground in whichever country they operate.

Given the festive time of year, it is perhaps fitting that senior Iraqi politicians are again pushing for the full activation of the ‘Iraq-China Framework Agreement’, which is akin to turkeys voting for Christmas. The Agreement, signed in December 2021, will enable China to complete its long-term strategy of sequestrating all of Iraq’s key oil, gas, and petrochemical assets to its own ends, as it sees fit. The similarly all-encompassing ‘Iran-China 25-Year Comprehensive Cooperation Agreement’ did exactly that with neighbouring Iran, as first revealed anywhere in the world in my 3 September 2019 article on the subject and analysed in full in my new book on the new global oil market order. In the mawkish parlance of today’s reality television programmes, Beijing’s ‘journey’ to turn Iran and Iraq effectively into client states has been long, and it has learned a lot about itself in the process, but ultimately it has all been worth it.

In Iraq’s case, it all truly began for China at the beginning of 2021, when Beijing used the same three-pronged strategy in the south of Iraq that Russia had used toward the end of 2017 to gain control over all the major oil and gas assets in Iraq’s northern semi-autonomous region of Kurdistan, as also analysed in full in my new book. Following the political chaos that came after that region’s massive vote in favour of full independence from Iraq, the Kremlin’s corporate oil proxy, Rosneft, firstly provided the government of Iraqi Kurdistan with US$1.5 billion in financing through a three-to-five-year prepayment oil supply deal. Second, it took an 80 percent working interest in five potentially major oil blocks in the Kurdistan region together with corollary investment and technical, technology, and equipment assistance. And third, it established 60 percent ownership of the vital Iraqi Kurdistan oil pipeline into southern Europe’s port of Ceyhan in Turkey by dint of a commitment to invest US$1.8 billion to increase its capacity to one million barrels per day. Related: Houthi Attacks Fail to Stop Middle East’s Pricing Problem

Using Russia’s playbook from Kurdistan, China at the beginning of 2021 firstly used state proxy, Zhenhua Oil, to agree a US$2 billion five–year prepayment oil supply deal between the Federal Government of Iraq (FGI) in Baghdad in the south of the country. Underlining once again that China’s oil and gas activities are part its broader colonising plans (President Xi is a great admirer of Great Britain’s use of the East India Company in its own such plans), Zhenhua Oil is a subsidiary of China’s massive defence contractor Norinco. Secondly, discussions began between China and Iraq on expanding the build-up of Beijing’s presence in the country’s oil and gas projects across the south of the country. The takeover by Chinese companies of multiple elements (exploration, development, maintenance, security, and so on) of oil and gas field licences in southern Iraq had been especially prevalent since the unilateral withdrawal of the U.S. from the ‘nuclear deal’ with Iran in May 2018, as also analysed in depth in my new book. China had also formally known from July 2021 that the U.S. would also end its combat mission in Iraq by the end of December that year at the latest, as the Presidential Administration had announced it in advance. And thirdly, as a part of the earlier 25-year agreement with Iran – which holds enormous sway over Iraq, through its political, economic, and military proxies – China had already begun building major logistics links that involved Iraq.

These logistical links not only benefited China by helping to construct a cohesive whole across the vast oil and gas resources of Iran and Iraq but also gave it multiple footholds to establish a ‘security’ presence on the ground across both countries. It is not widely known outside oil circles, but it is entirely legal for oil companies to deploy whatever security forces they think necessary to protect their valuable assets on the ground in whichever country they operate. In China’s case, this has been tens of thousands of such personnel across its key oil and gas facilities in the Middle East, and tens of thousands more across multiple sites elsewhere in the world in which it has rolled out projects connected to its ‘Belt and Road Initiative’ (BRI), as also fully detailed in my new book. Following the Zhenhua Oil deal in southern Iraq, Baghdad approved nearly IQD1 trillion (US$700 million) for infrastructure projects in the city of Al-Zubair in the southern Iraq oil hub of Basra. Judging from comments made by the city’s Governor at the time, Abbas Al-Saadi, China’s heavy involvement in Phase 2 of the projects was part of the broad-based ‘Oil for Reconstruction and Investment’ agreement signed by Baghdad and Beijing in September 2019. This agreement allowed Chinese firms to invest in infrastructure projects in Iraq in exchange for oil and, in turn, its key concepts were rolled into the broader ‘Iraq-China Framework Agreement’ of 2021.

The Al-Zubair announcement came around the same time as the awarding by Baghdad of another major contract to another Chinese company to build a civilian airport to replace the military base in the capital of the southern oil rich Dhi Qar governorate. The Dhi Qar region includes two of Iraq’s potentially biggest oil fields – Gharraf and Nassiriyah – and China said that it intended to complete the airport by 2024. This airport project, it announced, would include the construction of multiple cargo buildings and roads linking the airport to the city’s town centre and separately to other key oil areas in southern Iraq. In the later discussions involved in the 2021 ‘Iraq-China Framework Agreement’, it was decided unanimously by both sides that the airport could be expanded later to be a dual-use civilian and military airport. The military component would be usable by China without first having to consult with whatever Iraqi government was in power at the time, a senior source who works closely with Iraq’s Oil Ministry exclusively told OilPrice.com at the time.

China will not stop its efforts to consolidate Iran and Iraq into effectively one vast client state, as it is the core of its expansion policy across the Middle East as a whole - as important to it as Saudi Arabia was for many decades to the U.S.’s policy in the Middle East, as fully analysed in my new book on the new global oil market order. There are three main reasons why this is so. First, the Iran and Iraq together comprise the largest oil and gas resources in the world, with much of these still untapped. Second, it would move another region of the globe into the ‘multipolar world’ that China has said it wants. In reality, it does not want this – instead, it wants a unipolar world with it at the top, as highlighted in December 2021/ January 2022 meetings in Beijing between senior Chinese government officials and foreign ministers from Saudi Arabia, Kuwait, Oman, Bahrain, plus the secretary-general of the Gulf Cooperation Council (GCC). At these meetings, the principal topics of conversation were to finally seal a China-GCC Free Trade Agreement and “to forge a deeper strategic cooperation in a region where U.S. dominance is showing signs of retreat”. And third, Iran and Iraq together constitute the heart of the Shia Crescent of Power, which also notably features Syria, Jordan, Lebanon, and Yemen. This allows China three key geopolitical advantages. One, it can be used to hold the U.S. in check in those areas. Two, it offers several direct transport routes into Europe that can be utilised overtly or covertly. And three, it has even more oil and gas reserves that can be accessed by China at knockdown prices via similar long-term deals to those it has already reached with Iran and Iraq.

By Simon Watkins for Oilprice.com

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