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New Oil Deals In Iraq Carry Serious Geopolitical Implications

Near the beginning of December, Bloomberg sources suggested that the French oil major Total SA was looking to rid itself of its 18% stake in the Sarsang exploration block in northern Iraqi Kurdistan.

Now, Iraq’s oil ministry has signed an MOU with the oil giant to execute “large and promising projects” in Iraq, specifically in natural gas and clean energy, the country’s oil ministry said on Wednesday.

Total’s CEO Patrick Pouyanne was in the country at the time of the signing.

Total already has a 22.5% interest in Iraq’s Halfaya oilfield in southern Iraq—and it is still holding onto, for now, that 18% Sarsang asset that it was rumored to be exiting.

Also on Wednesday, Iraq’s state-run Dhiqar Oil Co announced that Lukoil’s trading arm Litasco would finance an oil project to double the capacity of the country’s Nassiriya oil project to 200,000 bpd. Iraq’s SOMO will pay Litasco with crude.

But Iraq’s oil deals don’t stop there. China is also muscling its way into Iraq’s oil industry, including via a $2 billion, five-year pre-payment oil supply deal between the Iraqi federal government and China’s Zhenhua Oil.

Related: The Surprising Rise And Fall Of A Shale Superstar

The deals come as Iraq works feverishly to pull itself out of the economic hole it now finds itself in, and is seeking emergency loans to the tune of $6 billion from the IMF as low oil prices continue to squeeze the country’s finances.

Iraq has been one of the worst laggards in adhering to the supply cut deal it agreed to as a member of OPEC, and its dire financial straits have likely contributed to its reluctance or inability to stick to the cuts.

As part of the deal it reached with OPEC members and its allies, known as OPEC+, Iraq and other laggards must meet all oil production cut obligations, even if they need to extend the cuts beyond the normal expiry.

By Julianne Geiger for Oilprice.com

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  • Mamdouh Salameh on January 28 2021 said:
    Other than the impact of the relatively low oil prices, Iraq’s most immediate and major problem is rampant corruption permeating the government. It is a very far cry from the days of Iraq’s historic leader Saddam Hussain when anybody indicated in serious cases of corruption would have been executed under Iraq’s laws. Unfortunately, those who took over the affairs of the State or appointed by the Americans in the aftermath of the US invasion of Iraq thought this is their chance to enrich themselves at the expense of the Iraqi people, hence the miserable state of Iraqi finances.

    Despite the above, Iraq is free to sign oil and gas deals with whoever companies it wants. But deals with China and Russia have indeed geopolitical implications in that they come at the expense of US influence there.

    Both China and Russia have been hard at work expanding their global energy footprints. This has been a major factor in the intensification of tensions between the United States and China. The most recent battlefield is Iraq given its huge proven oil reserves and dire need for cash.

    China and Iran emerged from the 2003 US war on Iraq the real strategic winners. China, like Iran, is now reaping the spoils of war. It is now the largest investor in Iraq’s oil industry and the second largest importer of Iraqi crude oil.

    China’s interest in buying ExxonMobil’s 32.7% stake in Iraq’s supergiant West Qurna 1 oilfield will result in its control of three of Iraq’s supergiant oil fields, namely Majnoon, Rumaila and Qurna 1 oilfields. And by taking over the contract for the crucial Common Seawater Supply Project (CSSP) which ExxonMobil isn’t keen to go ahead with, China will virtually be in control of Iraq’s oil industry. The CSSP is pivotal for Iraq’s plans to raise its production to a minimum of 7 million barrels a day (mbd) and a maximum of 12 mbd by transporting sea water from the Persian Gulf to oil production facilities to boost the pressure and recovery rates at key oil reservoirs in Iraq.

    As for Iran, it is hell-bent on ejecting US military presence from Iraq and turning the country into a vassal of itself thus achieving a spectacular geopolitical victory over the United States.

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

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