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China Tightens Its Grip On Iraq With Three Major Oil Deals

  • China has concluded three major oil deals with Iraq, most notably finalizing the 25-year deal for the Mansuriya field which could have huge geopolitical consequences.
  • The signing of these deals is part of a broader Iraqi policy of cooperation with China and Russia, providing military advantages for Moscow and economic benefits for China.
  • There is a glimmer of hope for the U.S. here if it were hoping to influence the Mansuriya project as it has not yet been signed despite being ‘finalized’.

China has continued to press home the geopolitical advantage given to it in Iraq following the official end of the U.S.’s ‘combat mission’ in the country on 9 December 2021 with the conclusion of three huge deals, all focused on the oil sector. However, crucially for the U.S.’s ongoing interests in the Middle East, there may still be scope to change the eventual outcome of the development contract for the giant Mansuriya gas field and associated projects. Last week’s ‘finalization’ of the 25-year deal for the China Petroleum & Chemical Corporation (Sinopec) to take a 49 percent share in the Mansuriya field, with the remainder held by Iraq’s state-own Midland Oil Company, followed the initial announcement of the deal in April 2021 that surprised many, given Russia’s longstanding interest in gas development projects in that region of Iraq. From the Chinese and Russian perspective, though, their activities across the Middle East – and also in other geopolitically sensitive areas in which the U.S. also has an interest, notably Asia-Pacific – is not a zero-sum game, as analyzed in depth in my new book on the global oil markets.

“An informal agreement was put in place at the beginning of 2021 that, for Iraq, China would have first refusal on developing a number of key oil and gas sites, one of which was Mansuriya, while Russia would have the same first refusal in other sites across the region,” a senior oil and gas industry figure who works closely with Iran’s Petroleum Ministry exclusively told OilPrice.com. “This is part of a broader policy of co-operation defined by the idea that in any country that may require military intervention to extend the Sino-Russian axis that may prompt confrontation with the U.S. - notably Syria - Russia takes the lead, whilst for any other countries, in which only money is required, China takes the lead,” he added. “However, given the military strategic importance of Mansuriya to Russia -  and, by default, to China - several Russian companies will also be present on the Mansuriya development working alongside Sinopec, principally on the technical and equipment side,” he underlined. 

 

Extremely close to the Iranian border, and just north of Baghdad, the Mansuriya gas field has an estimated 4.5-4.6 trillion cubic feet (Tcf) of gas in place, with plans to increase production to at least 320 million standard cubic feet (Mmscf) per day, making it a very valuable gas deposit in and of itself. Its broader significance to Russia – and, by extension, to China – is twofold. First, Iraq had previously always sought to offer the three fields of Mansuriya, Akkas, and Siba together as one development package. These three sites form a skewed triangle across southern Iraq, stretching from Mansuriya near the eastern border with Iran, down to Siba in the south (extremely close to the key Iraqi Basra export hub), and then all the way west across to Akkas (extremely close to the border with Syria). 

Second, this triangle was to have been linked in with a transit route running all the way from Basra to Syria, with much of it disappearing into Iraq’s lawless wasteland Anbar province, a place so violent and unpredictable that it was even avoided where possible by Islamic State. This route is the one that the U.S. military used to call ‘the spine’ of Islamic State, where the Euphrates flows westwards into Syria and eastwards into the Persian Gulf, extremely close to the border with Iran. It remains of vital strategic importance not just to Russian operations in Syria, and elsewhere in the region, but also to several elements of China’s ‘One Belt, One Road’ land and maritime routes. 

Related: U.S. Rig Count Rises Along With Crude Prices

This is precisely why, in September 2019, a preliminary contract between Russia’s Stroytransgaz and Iraq’s Oil Ministry was signed to develop the hitherto virtually unknown Block 17, as the Block is right in the middle of this ‘spine’. “Along the spine running from east to west are the historical ultra-nationalist and ultra-anti-West cities of Falluja, Ramadi, Hit and Haditha, and then we’re into Syria, and a short hop to the ports of Banias and Tartus that are vitally important to the Russians, and the listening station near Latakia,” said the Iran source. “The Russian presence, or Chinese one if managed with Russia, would also allow for the build-out of the Iran-Iraq-Syria oil and gas pipelines system, and the free movement of hydrocarbons products – or anything else - either south to the markets of Asia or to the East coast of Africa or west to the Mediterranean and beyond.” 

The caveat here, though, for the U.S. is that although this Mansuriya deal is scheduled to run for 25 years minimum, with options on both sides for five year extensions every five years, it may yet still be derailed. At the ceremony last week, the Oil Ministry was careful to highlight that although the deal with Sinopec has now been ‘finalized’ – following April 2021’s ‘announcement’ – it has not yet been officially ‘signed’, and that it would not be signed before a new government in Iraq is formed. “This clearly leaves the way open for the U.S. to come in with a few offers of its own, of the type that we have seen in recent years, involving several major U.S. corporations offering big money to Iraq for various deals,” said the Iran source.

Increasing the pressure on the U.S. to step in on this vital gas field development project – and the additional projects that go with it, linked to the ‘spine of Iraq’ – the Oil Ministry announced two other huge deals with China companies last week. According to a statement from Iraq’s Oil Ministry, the foundation stone has now been laid for the US$594 million crude oil processing plant at Block 9 in the Al-Fayha oil field in Basra Province. Oil Minister, 

Ihsan Abdul-Jabbar Ismail, said that the development is important for the production of light oil, with a target for this project of up to 100,000 barrels per day (bpd) of crude oil, along with 135 million standard cubic feet per day of gas at a future stage for electricity production. The development of the field was started in 2014 by the Kuwait Energy Company (KEC) and then picked up by the little-known Chinese company, United Energy Group (UEG), following its acquisition of KEC in 2018. Kuwait Energy Basra – an indirect wholly-owned subsidiary of UEG - has entered into the US$594 million engineering, procurement, construction and commissioning contract with a Chinese consortium consisting of China CAMC Engineering and CNOOC Petrochemical Engineering.  

Just prior to this announcement came another that the Power Construction Corporation of China (PowerChina) signed an US$880 million engineering, procurement and construction contract with Iraq’s Missan International Refinery Company to build the 150,000 bpd Missan Refinery Project. According to local news reports in 2019, the Missan International Refinery Company itself was formed by a little-known Swiss-Chinese consortium comprised of Swiss industrial firm Satarem (15 percent share) and China’s Wahan (85 percent share). The refinery project originally broke ground in 2016, with an estimated cost of US$6 billion, which, according to Iraq’s then-Deputy Minister for Refining, Deiaa Jaafar, would be funded by the Export-Import Bank of China and China Development Bank. At the time, Iraq was looking to move ahead with another three refineries, in addition to Missan, comprising the 300,000 bpd Nassiriya refinery, the 150,000 bpd Kirkuk refinery, and the 140,000 bpd Karbala refinery. According to the comments from Iraq’s Oil Ministry last week, the project will now be completed with the next 54 months. 

By Simon Watkins for Oilprice.com

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Leave a comment
  • Mamdouh Salameh on February 01 2022 said:
    China and Iran were the real winners of the United States’ 2003 war on Iraq. China emerged as the largest investor in Iraq’s oil industry and the second largest importer of Iraqi crude. Iran emerged as the most influential in Iraq’s politics.

    Since then, China has continued to expand its economic and strategic influence in Iraq. Both Russia and China are advancing their influence and interests in the whole Gulf region against a retreating United States as exemplified by the China-Russia-Iran alliance.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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