China becomes key player in Iraq’s oil industry as the Middle Eastern country rebuilds
However, Iraq still wants US participation in its oil industry.
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BAGHDAD: As Iraq rebuilds after years of occupation and fighting, China appears to be reaping the rewards of its stability.
In a departure from previous years, all of Iraq’s foreign licences during its latest oil licensing round last year went to China, instead of European and American oil majors that used to have a significant presence in the Middle Eastern country.
Baghdad offers oil companies the right to extract oil - which contributes to 85 per cent of the Iraqi government’s budget - and turn it into useable currency.
“The Chinese market is a big market for any producer of oil, so that’s why the Iraqi government wants to tighten their relationship with China,” said Dr Doraid Abdullah, energy analyst at Terra Power.
In 2019, the two countries inked an “oil for construction” deal. Under the agreement, Iraq sends oil to China, and China helps rebuild war-torn Iraq.
Experts, however, said that Iraq’s reliance on one country in such an important aspect of its oil sector is potentially concerning.
US OIL MAJORS’ WITHDRAWAL FROM IRAQ
There are currently no US oil companies extracting oil in Iraq.
In 2023, American oil giant ExxonMobil followed the lead of other major Western players Shell and BP in withdrawing from the country over concerns of government mismanagement, corruption, and political instability.
It is a situation that experts believe Baghdad is not content with.
Developing countries are looking for US oil companies for investment not just because of their expertise or marketing chops, said Dr Jim Krane, Wallace S Wilson fellow for energy studies at Rice University’s Baker Institute for Public Policy in the US.
“It’s also because it’s implied you’re developing a closer relationship with Washington, and that the US government might help you in other ways including helping protect your country from an aggressive neighbour,” he noted.
IRAQ STILL WANTS US PARTICIPATION
Baghdad still wants US participation in its oil industry.
Iraq’s Prime Minister Mohammed Shia' al-Sudani visited Texas in April and personally invited oil companies to buy licences this year, but in vain.
“Oil is geographically widespread. It’s being produced in ever more countries all the time. So they (the US) might be comparing Iraq with places like Suriname, or Tanzania, or Mozambique, or Papua New Guinea, or Guyana,” said Dr Krane, who is also co-director of the Middle East Energy Roundtable.
“(These are) relatively risky locales, where they’re going to be looking for a generous production service contract with some potential upside into it.”
In Iraq’s latest licensing round, it was mostly so-called technical services contracts for sale under which oil majors get a flat fee per barrel of oil they extract.
US giants typically want a production-sharing contract, which allows them to make bigger profits.
While Chinese companies are similarly driven by profit, there is also a national imperative to extract oil - China needs to buy foreign oil to meet domestic demand and has been importing nearly half of Iraq’s oil.
But the US is a net exporter of oil and does not share this need.
THE RISE OF SOLAR ENERGY
While burning gas and oil provides Iraq with nearly all of its electricity, the future could look quite different.
In a country where sunlight is abundant, solar power is becoming a popular alternative.
As summer temperatures climb, power-hungry air conditioners strain to cool homes and shops, triggering frequent power cuts that plague the country for most of the day.
These interruptions are enough to make the country desperate for an alternative power source.
This is another way that China, which dominates the world in solar technology, is getting in on the energy game.
China is building a 750-megawatt solar farm in Iraq, joining Saudi Arabia and France which also have mega projects that will power millions of homes.
But no matter which companies own the solar farms, it is China that stands to benefit the most, as it produces the vast majority of the most cost-efficient panels being deployed on those projects.
