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Simon Watkins

Simon Watkins

Simon Watkins is a former senior FX trader and salesman, financial journalist, and best-selling author. He was Head of Forex Institutional Sales and Trading for…

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Iraq Moves Further Out Of U.S.’s Influence With New Russia And China Deals

  • Plans to increase Iraq’s oil production and then to send that extra output to China in the first instance moved up a gear in last week’s Cabinet meeting
  • At the same Cabinet meeting last week, it was also agreed that Iraq should now give its full support to rolling out all aspects of the wide-ranging ‘Iraq-China Framework Agreement’.
  • A key part of both deals is that China has first refusal on all oil, gas, and petrochemicals projects that come up in Iraq for the duration of the deal.
Iraq

With the U.S.’s current primary Middle East focus being on trying to deter a widening of the Israel-Hamas War, China and Russia have been busy cementing their influence elsewhere in the region, most recently in Iraq. This remains a key target for Beijing and Moscow to expand their presence for three main reasons. First, it could easily become the world’s top producer of crude oil within a relatively short time if the endemic corruption in its hydrocarbons sector was curtailed. Second, its geographical positioning in the heart of the Middle East make it a vital link in building a network of logistical connections from the east of Eurasia into the west of Europe. And third, together with Iran under whose enduring influence its operates, it forms the core of the spiritual, political, military, and cultural Shia Crescent. A flurry of activity in the past couple of weeks involving Iraq, Russia, and China underline how seriously all these plans are moving forward. 

Firstly, plans to increase Iraq’s oil production and then to send that extra output to China in the first instance moved up a gear in last week’s Cabinet meeting, chaired by Prime Minister Mohammed Shia Al-Sudani. At the meeting, a senior source who works closely with Iraq’s Oil Ministry exclusively told OilPrice.com last week, the Cabinet agreed to increase crude oil exports to China by 50 percent – from 100,000 barrels per day (bpd) to 150,000 bpd. It was also agreed that the daily production capacity from Iraq’s largest oil field – Rumaila, featuring partners BP (47.6 percent), China National Petroleum Corporation (46.4 percent), and Iraq’s State Oil Marketing Organization (6 percent) – is increased from 1.3 million bpd to 1.4 million bpd by the end of this year. This is part of Iraq’s plan to increase its oil production to 8 million bpd by 2028. As analysed in depth in my new book on the new global oil market order, there is no fundamental reason why such an increase cannot be achieved – even 12 million bpd is perfectly feasible, given Iraq’s oil resources – with the only constraint being the pervasive corruption in its oil and gas sector that has hampered such progress for years.

Related: New Tech Hubs Pave The Way for U.S. Leadership In Green Innovation

Secondly, at the same Cabinet meeting last week, it was also agreed that Iraq should now give its full support to rolling out all aspects of the wide-ranging ‘Iraq-China Framework Agreement’ signed in December 2021, but agreed in principle more than a year before that. This agreement is very similar in scope and scale to the all-encompassing ‘Iran-China 25-Year Comprehensive Cooperation Agreement’, as first revealed anywhere in the world in my 3 September 2019 article on the subject and fully examined in my new book. A key part of both deals is that China has first refusal on all oil, gas, and petrochemicals projects that come up in Iraq for the duration of the deal, and that it is given at least a 30 percent discount on all oil, gas, and petrochemicals it buys. Another key part of the Iraq-China Framework Agreement is that Beijing is allowed to build factories across the country, with a corollary build-out of supportive infrastructure. This includes, importantly for its ‘Belt and Road Initiative’ – railway links, all overseen by its own management staff from Chinese companies on the ground in Iraq. The railway infrastructure in Iraq will be completed out after the network in Iran has been finished, and this began in earnest in late 2020 with the contract to electrify the main 900-kilometre railway connecting Tehran to the north-eastern city of Mashhad. As an adjunct to this, plans were put in place to establish a Tehran-Qom-Isfahan high-speed train line and to extend this upgraded network up to the north-west through Tabriz. Tabriz - home to several key sites relating to oil, gas, and petrochemicals, and the starting point for the Tabriz-Ankara gas pipeline – is to be a pivot point of the 2,300-kilometre New Silk Road that links Urumqi (the capital of China’s western Xinjiang Province) to Tehran, and will connect Kazakhstan, Kyrgyzstan, Uzbekistan and Turkmenistan along the way, before it then runs into Europe, via Turkey. 

Thirdly, given the scale and scope of the infrastructure developments to be implemented, there will be an extensive presence of Chinese ‘security’ personnel at the key projects throughout Iraq, the Iraq source told OilPrice.com last week. These will, in turn, be supported by security personnel attached to Iranian companies that will also be involved in the China-Iraq projects, notably those from Khatam al-Anbia – a massive conglomerate controlled by Iran’s Islamic Revolutionary Guards Corps (IRGC). The IRGC remains the key guardians of the ideas of Iran’s 1979 Islamic revolution, whose messaging it achieves in large part from the funding, training, and logistical support of multiple proxy militias across the Middle East, including Hamas in Palestine, and Hezbollah in Lebanon. The expended presence of Iranian firms with heavy IRGC contingent in Iraq, such as Khatam al-Anbia, will further enable Iran to push ahead with its long-held plan to build a strategically crucial ‘land bridge’ to the Mediterranean coast of Syria. Additional personnel across all the key infrastructure development sites in Iraq will come from Rosoboronexport, Russia’s state-owned monopoly for the export of all military and dual-use products, services, and technologies. 

Russia’s long-term plans to control a unified Iraq (along with China) – including the currently semi-autonomous region of Kurdistan in the north – as also analysed in depth in my new book on the new global oil market order, have also advanced in the last two weeks. October 11 saw Iraqi Prime Minister Al-Sudani meet with Russian President Vladimir Putin in Moscow, ostensibly to talk about the development of Iraq’s oil sector and the presence of Russian oil companies in it. In reality, according to the source who works closely with Iraq’s Oil Ministry, the discussions also included the future of oil exports from Kurdistan to Turkey, in which Russian oil giant, Rosneft, plays a key part, given its effective control over much of Kurdistan’s oil sector since 2017, as also covered in full in the book. Three days later, Iraq’s Deputy Prime Minister for Energy and Oil Minister, Hayan Abdul Ghani, met with Alexander Dyukov, Chairman of Gazprom Neft to discuss future oil and gas projects in the south and north of Iraq.  

By Simon Watkins for Oilprice.com

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Leave a comment
  • Mamdouh Salameh on November 01 2023 said:
    The Chinese-Russian strategic alliance is on the ascendency in the world. Iraq with its spectacular oil wealth is of great importance to both China and Russia.

    Moreover, the fact that Iran is closely connected with both Russia and China and also has huge influence over Iraqi affairs mean that Iraq has no alternative but to move closer to the China-Russia-Iran axis.

    Iraq will play a highly important role in satisfying global oil demand and quenching China’s thirst for oil in coming years and also in China’s Belt and Road Initiative (BRI) because if its geographical location.

    Moreover, Iran and its allies in Iraq and its Islamic Revolutionary Guard Corps (IRGC) are hell bent on ejecting US military presence from both Iraq and Syria. The evidence is the increasing attacks on US military personnel and positions in both Iraq and Syria in the aftermath of the Hamas-Israel conflict.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert

Leave a comment




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