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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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Russia’s Gazprom Awarded Iraq’s Huge Nasiriyah Oil Development

  • Russian gas giant Gazprom has been awarded the development contract for the supergiant Nasiriyah oil field.
  • The supergiant Nasiriyah oilfield has an estimated 4.36 billion barrels of reserves in place.
  • Beijing has long seen the development of the entire DhiQar province as a key to its strategy to turn Iraq into a client state.
Iraq

Russian gas giant Gazprom has been awarded the development contract for the supergiant Nasiriyah oil field in Iraq’s strategic southern eastern region close to the main export terminal of Al Fao in Basra. At around the same time, it was announced that China Petroleum Engineering and Construction Corp (CPECC) and PetroChina will complete the critically important Halfaya gas project by the end of Q1 this year. The Halfaya field lies 175 kilometres to the northeast of the Nasiriyah oil field and, together with Basra to the south, form a triangle of influence incorporating several major Russian and Chinese oil and gas developments. These two developments in turn follow the very recent announcement that China is over the halfway mark in completing the construction of Iraq’s biggest crude oil storage facility, also in Nasiriyah. This will also act as a logistical command centre for all of China’s and Russia’s oil and gas projects in southern Iraq and for the build-out of multiple non-oil projects connected to the all-encompassing ‘Iraq-China Framework Agreement’, as analysed in depth in my new book on the new global oil market order.

The supergiant Nasiriyah oilfield has an estimated 4.36 billion barrels of reserves in place, but since its discovery in the DhiQar province by the Iraq National Oil Company in 1975 little has been done to develop the oil. Tentatively coming on stream in 2009 and listed on Iraq’s 2009-2010 fast-track plan, which aimed to raise its output to about 50,000 barrels per day (bpd), the first half of 2009 saw ENI, Nippon Oil, Chevron, and Repsol submitting bids to develop the field on an Engineering Procurement Construction (EPC) contract basis, with a consortium comprised of Nippon Oil, Inpex, and JGC Corporation looking set to win the contract before negotiations broke down. The departure in 2014 of the divisive figure of Shia Islamist Nouri al-Maliki as prime minister, and his replacement by the seemingly more inclusive, although also Shia, Haider al-Abadi led to optimism in Iraq that the Nasiriyah project could move ahead again, but these hopes were also dashed. The development plan for Nasiriyah was then broadened out as part of a ‘Nasiriyah Integrated Project’ (NIP) that would include a 300,000-bpd refinery. This was part of Iraq’s plan at the time to increase refining capacity across the south by more than 700,000 bpd by (at that point) the end of 2015. Deals were agreed in principle with several international oil companies (IOCs) from both the Global North and the Global South to effect this, with around US$50 billion of investment earmarked for such developments in Karbala, Kirkuk, Missan, Mosul, and Nasiriyah. Again, these plans were subject to delays and changes. At this point, though, it is apposite to note that the development contract agreed just over a week ago with Gazprom for Nasiriyah does not include previous plans for the refinery. This leaves the way open for a Chinese firm to take the refinery project, as a senior source who works closely to Iran’s Petroleum Ministry exclusively told OilPrice.com last week. Related: U.S. Oil Drilling Activity Stalls

Such an arrangement would suit China’s ongoing big plans for Iraq perfectly. Beijing has long seen the development of the entire DhiQar province as a key to its strategy to turn Iraq into a client state, as it has largely done with neighbouring Iran. In Tehran’s case, this was achieved through 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 analysed in full in my new book on the new global oil market order. China is using the same sort of arrangement for Iraq, as evidenced in the equally all-encompassing ‘Iraq-China Framework Agreement’ of 2021. This in turn, was an extension in scale and scope of the ‘Oil for Reconstruction and Investment’ agreement signed by Baghdad and Beijing in September 2019, which allowed Chinese firms to invest in infrastructure projects in Iraq in exchange for oil.

Originally, China had intended on taking the very direct approach to securing all the assets it wanted in southern Iraq that Russia had taken in 2017 when it had effectively taken control of all of the oil assets in Iraq’s semi-autonomous region of Kurdistan, as also full detailed in my new book on the new global oil market order. Firstly, at the beginning of 2021, Chinese state oil proxy Zhenhua Oil agreed 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 of 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. 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 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 analysed 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. 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 southern oil rich DhiQar governorate. The Dhi Qar region includes two of Iraq’s potentially biggest oil fields – one being Nasiriyah, and the other Gharraf – 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.

This very direct strategy of China’s fell foul of the U.S., which still harbours aspirations to re-assert itself somehow in Iraq, despite all indications being that it has already lost out entirely to China and Russia. Nonetheless, it was made very clear to China that a de facto takeover of southern Iraq’s oil sector in the same way Russia had done in the north would not go down well with the White House, especially as these efforts were to be led by Chinese defence giant Norinco’s oil subsidiary Zhenhua Oil. Although the temperature had been turned down on the ongoing U.S.-China Trade War at the time, Beijing was assured that it risked it being turned up again. At the time, China could not afford any further damage to its economic prospects, given the chaos being wrought by rampant Covid and its disastrous handling of it through its ultra-tight ‘Zero-Covid’ policy. Instead, China reverted to its stealthier ‘East India Company approach’ and ramped up its signing of multiple ‘contract-only’ deals across many of Iraq’s biggest oil and gas projects. The next one could be for the Nasiriyah refinery project.

By Simon Watkins for Oilprice.com

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Leave a comment
  • Mamdouh Salameh on February 12 2024 said:
    Iraqi oil and gas developments are good for Iraq, China and Russia but not for the United States.

    While China and Russia are developing Iraq's great oil potential and helping bring prosperity to the country, America will be remembered in the eyes and minds of Iraqi people as the country which invaded them in 2003 on trumped up accusations to get its hands on Iraq's oil and in so doing destroyed the country and its social fabric and made it vulnerable to corruption and dissent.

    The Iraqi government and the people are eagerly awaiting to see the back of the United States. Unfortunately, Iraq is unable to coerce the US to leave because its hard currency earnings are locked up in the vaults of the US Federal Bank.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert
  • Roy Batty on February 13 2024 said:
    How about those TRILLIONS that we spent in Iraq just so that our enemies can benefit from the Iraqi oil? I have a very big "I told you so" for all of the Bushies that were talking about "Freedom Fries" and other nonsense. It's ironic that many of those same people just love Putin and his buddies in Iran, China and North Korea.

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