With the Western-leaning, reformist agenda of Iran President, Hassan Rouhani, neutered by the unilateral withdrawal of the U.S. from the Joint Comprehensive Plan of Action in 2018, hardline groups led by the Islamic Revolutionary Guards Corps (IRGC) have been able to gradually recoup all of their previous power and influence, and more. The additional part has been a definitive pivot away from any notions of engagement with the West and Iran seeking to push Iraq firmly into the Sino-Russian power bloc. This was highlighted again by last week’s announcement that Iraq’s Parliamentary and Economic Investment Committee is to re-open the file of the Sino-Iraq agreement agreed last September. This arrangement - agreed during the visit by Iraq’s then-Prime Minister Adel Abdul Mahdi to Beijing with the purpose of expanding China’s then US$20 billion of investment in Iraq in addition to the US$30 billion annual trade between the two countries - was already broad and deep enough to be a regional game-changer. It comprised eight major memoranda of understanding that incorporated virtually unlimited oil and gas sector exploration and development, the provision of materials, technology and expertise, and an extensive infrastructure build-out over the next 20 years. This is in line with China’s ‘One Belt, One Road’ (OBOR) multi-layered, multi-generational programme. It tangibly began in earnest last October, with the announcement from Iraq’s Finance Ministry that the country had started a programme to export 100,000 barrels per day (bpd) of crude oil to China as part of the deal. Chinese firms Zhenhua Oil and Sinochem were the importers of the Iraqi barrels involved, and all of the trade financing surrounding these exports was done by the China Export and Credit Insurance Corporation, OilPrice.com understands.
China’s modus operandi in its colonial plans around the globe is firstly to extend assistance to the specific area that a country needs help with most, and then to leverage that to work outwards into all other areas that are of use to its OBOR project. Sri Lanka, is a prime example of China’s standard colonial template at work, with Beijing beginning its push into the country by granting unlimited loans to beleaguered former President, Mahinda Rajapaksa, for his pet Hambantota Port Development Project. This project – as the Chinese well knew - stood little chance of succeeding as a port and when it failed to generate any significant business and Rajapaksa was voted out of office, the new government was unable to meet the loan repayment demands. At that point, the new Sri Lankan government had little choice but to hand over the port to China (plus 15,000 other acres of surrounding land) for a period of at least 99 years. Hambantota may have been useless as a standard port from the money-making perspective, but for China it is of enormous strategic significance, overlooking South Asia’s major sea lanes, and allowing it in the future to establish a dual use (commercial and military) facility for naval assets.
Related: Three Companies That Are Bigger Than The Entire Oil & Gas Industry
And so it is with Iraq. In addition to being granted significant reductions in oil prices from Iraq (and on oil and gas prices from Iran, as per an earlier agreement), China will be allowed to build factories in Iraq (and Iran), with a corollary build-out of supportive infrastructure (most importantly for its OBOR, railways), all overseen by its own management staff from Chinese companies on the ground in Iraq. Such people will also be entitled to ‘protection’, which will be in the form of Shia Iraq military and/or Shia militia (a mixture of Iraqi and Iranian personnel), plus Chinese security personnel. Crucially, though, all of these Iranian and Iraqi security people – and indeed all Shia militia in Iraq – will be under Iranian control from now on. As part of this, Iranian companies – initially led by subsidiaries of the IRGC-controlled Khatam al-Anbia and by Mapna – will be on the ground working with China’s CRRC, and also with Rosoboronexport, Russia’s state-owned monopoly for the export of all military and dual-use products, services, and technologies. “A key part of the recent two-year deal agreed between Tehran and Baghdad for the supply from Iran to Iraq of electricity and gas supplies was that Iran would from now on be in complete control of all Shia militia in Iraq, with Iranian military and intelligence officials on the ground in Iraq to co-ordinate and to train where necessary,” a senior oil and gas figure who works closely with Iran’s Petroleum Ministry told OilPrice.com last week. “It was agreed to by the new [Iraq] Prime Minister, [Mustafa al-Kadhimi] for two main reasons: first, [al-] Kadhimi needed the support of the Fateh Coalition to be made prime minister, and Fateh has very close links to the IRGC and, second, Iraq does not have the finances to spend on this at a time when it needs all money it can get hold of to pay salaries and benefits to its people or face more widespread protests,” he said. “Consequently, Iran was able not only to secure complete control of all Shia militia groups in Iraq [largely in the south, where many of the oil fields lie, and the key export hub at Basra] but also to tell Iraq that it needs to push ahead with the deal made with China last year, and to expand its parameters,” he added.
The railway infrastructure in Iraq will be built out after the completion of the network in Iran by China, allowing for the transport of all manufactured products from China into, ultimately, Europe. In this context, Iran’s Vice President, Eshaq Jahangiri announced last August that Iran had signed a contract with China to implement a project to electrify the main 900 kilometre railway connecting Tehran to the north-eastern city of Mashhad. Adjunct to this, Jahangiri added that there are also plans 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 a number of key sites relating to oil, gas, and petrochemicals, and the starting point for the Tabriz-Ankara gas pipeline, will 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 connecting Kazakhstan, Kyrgyzstan, Uzbekistan and Turkmenistan along the way, and then via Turkey into Europe.
Related: Bullish Sentiment Is Fueling A Wave Of Oil Trades
At the same time, prior to the appointment of al-Kadhimi, as prime minister, Iraq had been working on new laws that were to regulate the operation of a reconstruction agency, the primary function of which, according to the Iran source, was to: “Allow China to just get on with its plans, without the usual red-tape.” All of these initiatives are back on track, the source underlined, with al-Kadhimi having come to the conclusion – given the country’s parlous economic state, and rising unrest against the remnants of U.S. occupation – that siding fully with Iran (and, by extension, China and then Russia) is the only solution that holds up the chance of a near-term fix for Iraq’s ongoing financial and security problems. “Iran can lend immediate security support to Iraq, just as it did in the Kurdish uprising in the north after the 2017 independence vote, and China and Russia can give wider support to Iraq, as they each have Permanent Member votes – two out of the five [the others are the U.S., the U.K., and France] – on the UNSC [United Nations Security Council],” the source told OilPrice.com last week.
Chinese money, equipment and technology (in addition to the aforementioned personnel) should, Baghdad and Tehran think, allow Iraq to gradually increase its oil production to the 7 million bpd targeted by end-2022, and then to the 9 million bpd target figure that had previously been the intermediate figure (between 7 million bpd and 12 million bpd by end-2018) in place before the troubles with Islamic State began across the country. Critically, it would also allow Iraq to move forward with the build-out of the Common Seawater Supply Project (CSSP), in the absence of U.S. supermajor ExxonMobil, as part of the broader ‘Integrated South Project’ (ISP). “Before ExxonMobil pulled out the last time, the [CSSP] smaller project was always likely to be a joint project between Exxon and CNPC [China National Petroleum Corporation], and China now thinks that it can handle the entire thing, even the roll-out into the full ISP,” said the source. Indeed, the full ISP would suit China’s OBOR purposes, as it also includes corollary projects to construct oil pipelines, storage facilities, and pumping stations. “Additionally, China would take all of the oil that Iraq could produce,” the source underlined.
As recently as last October, Iraq’s Electricity Minister Louay al-Khateeb wrote: “China is our primary option as a strategic partner in the long run...We started with a US$10 billion financial framework for a limited quantity of oil to finance some infrastructure projects...[but] Chinese funding tends to increase with the growing Iraqi oil production, [and is] to be used differently from the previous policies, through construction, investments and operationalization [sic] of the reconstruction council.”
By Simon Watkins for Oilprice.com
More Top Reads From Oilprice.com:
- Oilfield Services May Not Recover Until 2023
- How Saudi Arabia Caused The Worst Oil Price Crash In History
- Pirates Threaten Oil Operations In Gulf Of Mexico