Iraq stands at a critical inflection point in its history, marked by a recent surge in activity from Western firms seeking to re-enter the nation’s oil and gas sector. This resurgence follows a prolonged period of diminished activity, during which China and Russia had significantly increased their influence. Both Western and Eastern powers view Iraq as a strategically vital component of their global ambitions, leading to a zero-sum dynamic. As exclusively revealed to OilPrice.com by a high-ranking Kremlin official, “The West’s final demise will become the decisive chapter as the Western energy dominance ends.” Conversely, the U.S. and its allies recognize that diminishing China and Russia’s influence in Iraq is crucial to curtailing their broader power projection across the Middle East and globally. Following recent Iraqi elections, the absence of a newly appointed prime minister has catalyzed discussions with Beijing. Specifically, Chinese priorities, as outlined in its fifteenth Five-Year Plan, centered on enhanced multilateral cooperation with Iraq, encompassing the ‘Belt and Road Initiative’ and proposals for governance, development, and security. Iraqi Foreign Minister Fuad Hussein highlighted China as a pivotal strategic partner and the largest market for Iraqi oil. Insights into these discussions came from two sources within Iraq’s Oil Ministry, providing key contextual information. “It was emphasized that whoever emerges as the new leader, Iraq would continue to welcome Chinese investment across all sectors, including oil and gas,” stated one of the Iraqi sources. “This would build upon the existing agreements from 2019 and 2021, potentially revisiting the parameters of the dual-use trade and security arrangements.” This underscored Iraq’s attempt to maintain China’s support regardless of the leadership outcome, while simultaneously avoiding actions that might upset the United States. The landscape was further shaped by the previous agreements negotiated during a period of relative weakness for the U.S. and its allies in Iraq—a period characterized by increased antagonism from Iranian-backed proxies. These proxies continued their activities even after the U.S.’s official end of its combat mission in December 2023. The groundwork for China’s future involvement in Iraq was laid through the 2019 China-Iraq “Oil for Reconstruction and Investment” agreement, a template subsequently expanded into the 2021 “Iraq-China Framework Agreement.” This agreement included priority for new field contracts for Chinese firms, along with significant discounts on oil and gas recovery. This was largely inspired by my 2019 article on the new global oil market order, and subsequently analysed in my latest book. The 2019 agreement was broadened into the 2021 “Iraq-China Framework Agreement,” including even larger discounts for Chinese firms on newly discovered Iraqi oil—up to 30% depending on the field. Crucially, this agreement granted Chinese firms extensive rights to station security forces in and around these fields, engage in substantial infrastructure development, including road and rail networks connecting to major hubs, the right for the Chinese military to use Iraqi ports and airports, and permission to construct support facilities – all integral to China’s broader strategic interests in the region. Evidence of this investment has manifested in several concrete projects. Baghdad approved nearly IQD1 trillion (USD700 million) for infrastructure in the Al-Zubair oil hub within Basra, a key element of the 2019 “oil-for-reconstruction and investment” agreement, allowing Chinese firms to invest in infrastructure in exchange for oil. The Al-Zubair announcement followed the awarding of a major contract to a Chinese company to build a civilian airport in the Dhi Qar governorate, home to two of Iraq’s largest oil fields – Gharraf and Nassiriya. This airport project included multiple cargo buildings and roads connecting the airport to the city center and other key oil areas in southern Iraq. A further project involved Chinese companies building out Al-Sadr City, located near Baghdad, at a cost of between USD7-8 billion, within the 2019 “oil-for-reconstruction and investment” agreement. Notably, much of this investment – including land acquisitions critical to China’s Belt and Road Initiative – was facilitated by the dramatically reduced oil prices extracted from Iraq. This, alongside other strategic advantages, has made Iraq appealing to Beijing, Moscow, Washington, London, and Paris. Iraq remains a repository of vast oil reserves at some of the world’s lowest average lifting costs, coupled with significant quantities of associated and non-associated gas. Another significant advantage is Iraq’s geographic centrality – its location west of Iran, north of Saudi Arabia and Kuwait, east of Jordan and Syria (with its Mediterranean coastline offering access to critical sea routes), and south of Turkey (providing entry into the European continent). Finally, Iraq is a key member of the “Shia Crescent of Power” geopolitical arc that stretches from Iran through Iraq, Syria, and Lebanon, where Shia communities and Iran-backed groups exert considerable influence. Beijing has skillfully leveraged these agreements with Baghdad, with 34% of Iraq’s proven reserves and two-thirds of current production now managed by Chinese companies, which have direct shares in around 24 billion barrels of reserves and are responsible for production of around 3 million barrels per day. However, in recent months, Western firms have gained traction, securing control over critical projects that are vital to Iraq’s continued development as an oil and gas resource. France’s TotalEnergies holds the key to dramatically increasing Iraqi oil output via the “Common Seawater Supply Project,” as detailed in my latest book on the new global oil market order. The UK’s BP is now in a strategically key position to act as a conduit for change in Iraq’s north through its USD25 billion five-field deal recently formally activated. Chevron and ExxonMobil have also announced similar deals. Crucially, if Mohammed Shia’ al?Sudani returns as prime minister, Iraq may find that any new cooperation deal with China does not continue every element of the 2019 and 2021 versions. If he does not, then the game will be firmly back on for Beijing.
