Concern over China’s tightening hold over Iraq’s oil industry

As scepticism grew over China’s investments in the region and globally, Iraq has begun efforts to limit the growing influence of China. By May 2022, Iraq’s oil ministry had forestalled three major deals of the Chinese companies that would have allowed them a greater control to oil fields … writes Dr Sakariya Kareem

Since 2021, Iraq’s oil ministry has stopped three prospective agreements which would have given greater control to the Chinese oil companies of Iraqi oil fields. These agreements include Russia’s  Lukoil, Britain’s BP and American oil major Exxon Mobil which wanted to sell stakes in major fields to Chinese state-backed firms. However, Iraq’s oil ministry has intervened to stop these deals from materialising.

Oil has always been a key factor in world politics. And in the 21st century its significance has increased even more as energy has become a significant driver of economic growth. The Middle East and specifically Iraq is one of the richest lands in terms of oil reserves. And therefore, Iraq has become important for the Chinese foreign policy. It is said that the country is third-largest oil supplier for Beijing.

Beijing has been the topmost investor for Baghdad and the latter has benefitted the most from the Belt and Road initiative with the receipt of $10.5 billion for infrastructure projects such as a power plant and an airport. On the other hand, Western oil companies are keen to pull out of the oil rich state as they have been reportedly facing issues like consignments getting held in the ports by militias who would ask for bribes to release them. They were also concerned with the growing risks following frequent terrorist attacks against the industrial facilities and proclamations regarding extortion practices of not just tribes and militias but even the bureaucracy. China was keen to seize this opportunity by entering Iraq’s oil industries sector.

However, as scepticism grew over China’s investments in the region and globally, Iraq has begun efforts to limit the growing influence of China. By May 2022, Iraq’s oil ministry had forestalled three major deals of the Chinese companies that would have allowed them a greater control to oil fields. Lately, Baghdad has been sceptical of China’s growing influence in the oil industry that was also perceived unfavourably by the Western oil companies, which remain crucial market for Iraqi oil industry.

The officials from the government of Iraq have been constantly expressing their grave concerns about the speed at which Beijing is trying to take over Iraq in the oil sector. A recent protest in Iraq’s south-eastern governate of Maysan, which is the headquarter of a Chinese oil firm China Petroleum Engineering and Construction has already hinted towards a growing unrest in the country with regard to the expansionist ambitions of China concerning the Iraqi oil industry.

According to the analysts, China is leveraging the security vacuum which is resulting out of the U.S. withdrawal from Iraq in 2011. Beijing is doing so by aligning its state-owned firms with the militia groups so that it can reap the benefits in the oil sector.

For Beijing, Baghdad is the preferred trading partner in the Middle East and largest oil supplier only next to Riyadh and Moscow. Apart from the energy reserves, one of the critical aspect the Beijing wants to benefit from is Iraq’s strategic location near the Persian Gulf and Strait of Hormuz – the two sites which are pivotal for the BRI. Since, the US had already withdrawn from the region, Beijing got the opportunity that it was long seeking. Its active role in Iraq’s reconstruction after years of war and conflict have given it a position of influence in the country.

China has already started reaping fruits from the opportunities presented in the aftermath of the conflict in Iraq and that too without getting involved militarily. The Iraqi citizens are seeing this growing Chinese might in their country on the lines of colonialism. Hence, protests outside Chinese establishments have been occurring multiple times. Interestingly, Beijing did not need to use any force unlike the U.S. to gain what it wants. However, Iraq has slowly started realising this hidden agenda and is acting according to the limited choices available. Hence, to ensure that Iraq does not become another prey of Chinese debt trap diplomacy like Sri Lanka, efforts are required from the Western bloc especially by the U.S. to contain China from its expansionist ambitions in the Middle-East.

The story of Iraq is just like the other countries which have begun rebuffing Chinese investment proposals to move away from Chinese dependence. As one Iraqi official remarked, “We don’t want the Iraqi energy sector to be labelled as a China-led energy sector and this attitude is agreed by government and the oil ministry.”