Chinese companies have played a significant role in Iraq’s oil sector in recent years, effectively tightening their grip on oil and gas resources through various strategies. They now directly own approximately $24 billion in the oil sector, in addition to managing about 34% of Iraq’s confirmed reserves and two-thirds of its current production through the China National Petroleum Corporation.
Following the significant share awarded to Chinese companies in Iraq’s fifth supplementary and sixth oil and gas licensing rounds, an international report issued Wednesday warned of China’s rapid move to fill the power vacuum in Iraq by enhancing its energy security and global influence, predicting that the results might be counterproductive and bring more burdens.
The report by the “South China Morning Post,” based in Hong Kong, noted that “China is neutral in its policies, but the region is rife with longstanding rivalries and conflicts,” recalling that “China recently secured the lion’s share in Iraq’s oil and gas exploration licensing rounds as part of its effort to reduce dependency on Iranian gas.”
The report observed that “this Chinese move reflects its pursuit to secure energy supplies at a time when it is struggling to curb a domestic growth slowdown,” adding that “China is seizing opportunities in the Middle East that have arisen amid conflicting Western ambitions,” citing a recent statement by top Chinese diplomat Wang Yi supporting the Palestinians.
It also mentioned that “American and European companies are wary of long-term investments in war-torn countries where corruption is rampant, despite these countries’ rich oil and gas reserves.” It pointed out that “these countries are not competing with China for oil field contracts, and although Washington has invested lives, money, and time in Iraq, China is the one reaping the benefits.”
However, the report highlighted that “China’s strategy in Iraq could be a zero-sum game” in terms of politics, trade, and influence, given the power dynamics in the region.
After mentioning “perilous risks facing the art of governance,” which the United States and Europe understand well, the report said, “China will face challenges in Iraq due to hostilities that have deepened over the past few centuries.”
With reference to the Gaza War and tensions in the region’s societies that their governments cannot manage, the report found that “China’s neutrality and its facilitation of dialogue will not protect it from having to face these difficulties,” adding that “as China’s engagement in Iraq deepens and challenges multiply, President Xi Jinping’s efforts could be jeopardized and possibly rejected, questioning how China can succeed if it does not align with local actors.”
The report observed that “History repeatedly shows that a geostrategic power vacuum resembles black holes.” It noted that countries utilize various means, such as economic incentives, to gain influence when their competitors recede, either partially or entirely. However, sometimes the best strategy is to remain on the sidelines.
The report referenced a statement made by U.S. President Joe Biden about the increasing Chinese presence in the Middle East in 2022 during his visit with Saudi Crown Prince Mohammed bin Salman, where the President said, “We will not step back and leave a vacuum to be filled by China, Russia, or Iran.”
In this context, the report mentioned that there are approximately 50,000 U.S. troops across the region, with the largest U.S. military base located in Qatar. There has also been unprecedented security cooperation between Washington, Tel Aviv, Riyadh, and Abu Dhabi following Iran’s targeting of Israel with missile attacks and drones in April last year.
Comparatively, the report stated that “China’s foothold in the region is not of the same strength,” noting that China and Iraq last year celebrated 65 years of bilateral relations that began after the 1958 Iraqi coup when Gen. Abdul Karim Qasim overthrew the Hashemite monarchy and Beijing recognized his “revolutionary” government. It added, “During the Iraq-Iran war in the 1980s, China sold weapons to both countries.”
Despite these efforts, the report noted that “China’s relations with Iraq were limited until the past two decades.”
The report further explained that “What has driven the two countries closer to each other is Beijing’s increasing need for oil, and Iraq’s need for liquidity and reconstruction after years of wars and the impacts of falling oil prices, in addition to the ‘downsizing’ of U.S. forces in Iraq.”
The report noted that “the 2009 agreement granted the China National Petroleum Corporation a 37% stake in the Rumaila oil field, Iraq’s largest, and by 2013, China was involved in more than half of Iraq’s daily oil production.”
It continued, “In 2010, the Chinese government canceled 80% of Iraq’s outstanding debts to Beijing, and video footage from 2015 shows the Iraqi military operating CH-4 Chinese-made drones.”
Additionally, the report stated, “In 2019, the countries signed an oil-for-infrastructure agreement, wherein Beijing finances infrastructure projects in exchange for 100,000 barrels per day.”
As of February, Chinese companies were overseeing two-thirds of Iraq’s oil production, according to the report.
It mentioned that “in 2021, Iraq became the top target for financing under the Belt and Road Initiative, receiving $10.5 billion for infrastructure projects.”
The report added, “Last year, the Central Bank of Iraq announced it would settle trade transactions with China directly in yuan.”
According to the report, such entanglements turn into a ‘maze,’ where goals become obscured and complications increase, likening the situation to machines with many moving parts that require constant and increasingly difficult maintenance and repairs.
The report continued, “Complications arising from uncertainties, disturbances, and unforeseen events, such as the helicopter crash that killed Iranian President Ebrahim Raisi, can be added.”
Thus, the report concluded that “all these issues necessitate a delicate balancing act for China, which must look after its partners’ interests while distancing itself from local power players, all while monitoring increasing economic vulnerabilities at home.”
It considered that “Beijing might find itself compelled to exit Iraq as Gulf states, especially Saudi Arabia, Qatar, and the UAE, make significant investments to rally regional power and ensure stability, isolating Iran.”
It noted that “some Gulf states have signed agreements with China as part of the Belt and Road Initiative, but their ambitions will limit Beijing’s ability to act unilaterally. Additionally, regional stability issues, like Houthi attacks on ships in the Red Sea, might necessitate China’s cooperation with the United States, Europe, and Gulf states to secure oil and gas flows and protect investments, adding complexities to tense relations with the West over trade.”
The report concluded: “As is currently the case with the West, China may increasingly find its progress being eroded by centuries of accumulated hostility,” adding that it “may face burdens beyond its capacity to bear.”
