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Simon Watkins

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Why TotalEnergies’ $27 Billion Deal With Iraq Is A Gamechanger

  • The four-pronged megadeal between TotalEnergies and Iraq has received the greenlight after many delays.
  • The US$27 billion megadeal is set to move into action within four weeks and, if it does, then it will be a game-changer for Iraq.
  • Most important of the four projects is the completion of the Common Seawater Supply Project.

The long-delayed US$27 billion four-pronged megadeal between France’s TotalEnergies and the Federal Government of Iraq has received the final go-ahead from both sides and is due to start within the next four weeks. The huge deal is crucial in enabling Iraq to increase its oil production from around 4.5 million barrels per day (bpd) to perhaps 13 million bpd within five years. It is also critical to Iraq’s ability to end its dependence on Iran for gas imports and electricity for its power grid. For the West, the deal is crucial is securing access to Iraq’s huge, underdeveloped oil and gas reserves as part of its strategy to find new sources of each to compensate for lost supplies from Russia. It is also vital in reasserting a stake in the central Middle East to counteract the increasing influence of China and Russia there, as analysed in my new book on the new global oil market order. In short, this four-pronged deal with TotalEnergies is a very big thing indeed, which is why all parties involved have pulled out all the stops to either get it across the line or stop it in its tracks, depending on which side they are on.

Iraq’s input into proceedings, which caused the main delays from the original signing of the megadeal in 2021 to now, was not part of a brilliantly interwoven geopolitical strategy aimed at world domination (that was China, with a little help from Russia – more of that in a moment). Instead, it was down to its standard attempts to gouge out as much as possible in the way of commissions – delivered in the form of ‘cash compensation payments’ made to various front companies - for some senior government people. Suffice it to say here that at one stage Iraq was in the process of re-establishing the omni-toxic Iraqi National Oil Company (INOC), an organisation widely regarded within the oil industry as one of the most corrupt organisations ever created. It quickly became clear that one does not get to become a senior figure in France’s leading oil and gas company by being as stupid as seems to be the minimum requirement to secure a senior position in Iraq’s Oil Ministry, with TotalEnergies refusing to partner with INOC ‘due to the lack of clarity on the legal status of the company’. In layman’s terms, the French oil and gas behemoth did not trust INOC as far as it could throw it. In October 2022, then, Iraq’s Federal Supreme Court invalidated the decision to re-establish the Iraqi National Oil Company on the basis that several of its founding clauses were in breach of the constitution, and the deal with TotalEnergies was again a realistic prospect. There have been further shenanigans from Iraq aimed at increasing the possibilities for personal enrichment of some key government people involved – the main one being an increase in the government’s stake in the projects to varying degrees – but all have been rebuffed by the French firm. As it stands, the agreement is now for the Iraq government (through the Basrah Oil Company) to hold a 30 percent stake in the megadeal. TotalEnergies will hold 45 percent of it, with QatarEnergy holding the remaining 25 percent stake.

Related: European Natural Gas Prices Plunge As Norwegian Supply Rises

According to sources in the U.S.’s and European Union’s energy security complexes spoken to exclusively by OilPrice.com on this megadeal, Iraq was emboldened to make such demands of TotalEnergies by elements from China and Russia. Following the recent landmark resumption of relations between Iran - which retains enormous influence over Iraq through political, military and economic proxies - and Saudi Arabia, brokered by China (and Russia to a lesser degree), it was made clear to Iran it should do all it could to stop Western companies doing deals in Iraq. Specifically, the European Union’s energy security source exclusively told OilPrice.com, Iran was told by a very high-ranking official from the Kremlin that: “By keeping the West out of energy deals in Iraq – and closer to the new Iran-Saudi axis - the end of Western hegemony in the Middle East will become the decisive chapter in the West’s final demise”. 

This would also play into what China wants from the Middle East in its grand scheme of things, as delineated in its multi-generational power-grab project, ‘One Belt, One Road’. What it wants is to turn the region into a large oil and gas station by which it can fuel its economic growth to overtake the U.S. as the number one economic and political superpower by 2030. The three biggest oil and gas reserves in the region belong to Iran, Iraq, and Saudi Arabia, so it wants to control those to begin with, as examined in detail in my new book. For Russia, which already has lots of oil and gas – over which China already has significant control – the objectives in the Middle East are more varied. One objective is to continue to exert influence in several countries that it regards as being key to maintaining some of its hold over the Former Soviet Union states. Another, more recent one, is to use this influence to bolster its position as a partner of note to China. As for the other countries in this soap opera – Iran, and Iraq, and now also more clearly, Saudi Arabia – they are in this new global alliance partly for the economic and political support from China (and to a lesser degree, Russia) and because their political systems are naturally much closer to the authoritarian regimes of China and Russia than they are to the democratic ones of the U.S. and its allies.

Nonetheless, as it stands, the US$27 billion megadeal is set to move into action within four weeks and, if it does, then it will be a game-changer for Iraq. Most important of the four projects is the completion of the Common Seawater Supply Project (CSSP). This is crucial to enabling Iraq to reach its longer-term crude oil production targets of 7 million bpd, and then 9 million bpd and then perhaps 13 million bpd, as also analysed in depth in my latest book on the global oil markets. The project involves taking and treating seawater from the Persian Gulf and then transporting it via pipelines to oil production facilities to maintain pressure in oil reservoirs to optimise the longevity and output of fields. The long-delayed plan for the CSSP is that it initially supplies around 6 million bpd of water to at least five southern Basra fields and one in Maysan Province and is then expanded for use in other fields. 

The second of the projects is also a matter of urgent necessity: to collect and refine associated Natural Gas that is currently burned off at the five southern Iraq oilfields of West Qurna 2, Majnoon, Tuba, Luhais, and Artawi. Initial comments from Iraq’s Oil Ministry last year highlighted that the plant involved in this process is expected to produce 300 million cubic feet of gas per day (mcf/d) and double that after a second phase of development. Former Iraqi Oil Minister, Ihsan Abdul Jabbar, also stated last year that the gas produced from this second TotalEnergies project in the south would help Iraq to cut its gas imports from Iran. Successfully capturing associated gas rather than flaring it will also allow Iraq to revive the also long-stalled US$11-billion Nebras petrochemicals project with Shell, which could be completed within five years and would generate estimated profits of up to US$100 billion for Iraq within its 35-year initial contract period.

TotalEnergies already has ongoing experience of working across Iraq, holding a 22.5 percent stake in the Halfaya oil field in Missan province in the south and an 18 percent stake in the Sarsang exploration block in the semi-autonomous region of Kurdistan in the north. This gives it very specific operational experience of working on the ground in Iraq, which would also enable it to increase crude oil output from the Artawi oil field – and this is the third of the four projects to which it is committed. According to earlier comments from Iraq’s Oil Ministry, TotalEnergies would help to boost output from the Artawi oilfield to 210,000 bpd of crude oil, up from the current circa-85,000 bpd. The last of the four projects that were to have been undertaken by the French company would be the construction and operation of a 1,000-megawatt solar energy plant in Iraq.

By Simon Watkins for Oilprice.com

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Leave a comment
  • DoRight Deikins on July 17 2023 said:
    Good luck. Just because the agreements have been signed doesn't mean the pressure, whether it be financial, physical, or other disruptions won't be on the table from those opposing the deal.
  • George Doolittle on July 17 2023 said:
    If it's not Guyana, GOM or Utica Marcellus I don't think anyone cares going on forever now. "technically" not true since the 1970s and the oil business in point of fact though not formally since after Y2K and the dot.com bust.
  • Mamdouh Salameh on July 18 2023 said:
    It will indeed be a gamechanger for Iraq in particular, OPEC+ and the global oil market.

    And while Iraq does indeed have all the ingredients to become the world’s biggest oil producer sitting on more than 400 billion barrels (bb) of oil reserves consisting of proven, semi-proven and probable reserves, the world’s most prolific oil wells and the cheapest costs of production, producing 13.0 million barrels a day (mbd) is an impossibility on technical grounds for the foreseeable future. What is achievable is 7-8 mbd by 2028/29 rising to 10.0 mbd by 2033.

    The TotalEnergies deal will have a great beneficial impact on the Iraqi economy in terms of the huge oil revenues including collecting the flared gas for use in electricity generation thus reducing its dependence on Iranian gas supplies.

    At the heart of Iraq’s oil ambitions is the completion of the quintessential Common Seawater Supply Project (CSSP) without which Iraq’s oil ambitions could never be achieved.

    However, exploiting Iraq’s spectacular oil wealth will depend first and foremost on two factors: political stability and elimination of the cancer of corruption from Iraq. For this, Iraq badly needs another Saddam Hussein.

    And contrary to assertions by the author, the deal won’t affect the growing influence of the China-Russia axis in the Gulf region as this is a part and parcel of the emerging new multipolar World Order and the new global financial system. Both are irreversible. Moreover, it will hardly affect Iran’s political presence in Iraq and its influence over it since it is part of the changing world order.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert

Leave a comment

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