China Poised To Take Further Control Of Iraq’s Key Southern Oil Assets

Authored by Simon Watkins via OilPrice.com,

• China is over the halfway mark in completing its strategically vital oil project in the critical Iraqi energy hub of Nasiriyah.

• This facility will act as a storage hub and supply conduit for 3.0-3.5 million barrels of crude oil.

• Even before the huge strategic importance of the new Nasiriyah facility, China will benefit from its massively enhanced presence there in the matter of increasing its oil supplies from southern Iraq, with the DhiQar Province being home to several huge fields

China is over the halfway mark in completing its strategically vital oil project in the critical Iraqi energy hub of Nasiriyah, at the heart of the some of the country’s biggest oil and gas fields and close to its main export terminal of Al Fao in Basra. According to the Iraq Ministry of Planning, the China Petroleum Pipeline Engineering Company (CPPEC) is now over 55 percent complete on the construction of the country’s biggest crude oil storage facility, located in Nasiryah city in DhiQar province.

This facility will act as a storage hub and supply conduit for 3.0-3.5 million barrels of crude oil that will then either go to export out of Basra Port or will be transported through pipelines to refineries and power plants in central and northern Iraq. It will also act as a logistical command centre for all of China’s extensive oil and gas projects in Iraq and for the build-out of multiple non-oil projects connected to the all-encompassing ‘Iraq-China Framework Agreement’, as analysed in full in my new book on the new global oil market order. 

Even before the huge strategic importance of the new Nasiriyah facility, China will benefit from its massively enhanced presence there in the matter of increasing its oil supplies from southern Iraq, with the DhiQar Province being home to several huge fields. The Gharraf field is one, holding around 1.3 billion barrels of oil reserves and currently producing around 130,000 barrels per day (bpd), with plans to increase this to 230,000 bpd within the next two years. Lead operator Petronas of Malaysia said last May that it wants to sell its stake in the field. However, China already effectively controls what goes on at the site through major ‘contract-only’ awards secured by its companies.

The winning of multiple contract-only awards by Chinese firms at major oil and gas sites in Iraq was for a long time the preferred way for the country to covertly gain control over a site without provoking the ire of the U.S., while it still retained a strategic interest in Iraq, as also analysed in full in my new book on the new global oil market order. In Gharraf’s case, the China Petroleum Engineering and Construction Corporation (CPECC) was awarded a US$308 million engineering, procurement, construction and commissioning contract a while ago. Additionally, July 13 saw China’s Zhongman Petroleum and Natural Group sign a separate engineering and construction project for Gharraf. Back in 2015, Zhongman was also awarded a US$526.6 million drilling deal for Iraq’s supergiant West Qurna 2 oilfield. Further emboldened by the effective withdrawal of the U.S. from Iraq at the end of its combat mission in December 2021, the beginning of this year saw PetroChina take over the lead developer role at the neighbouring supergiant West Qurna 1 oilfield from the U.S.’s ExxonMobil. This was followed just a week later by the awarding of a major build-own-operate-transfer contract to a subsidiary of PetroChina to develop the Nahr bin Umar onshore gas field.

At the other end of the development scale in DhiQar Province is the supergiant Nasiriyah oilfield, discovered by the Iraq National Oil Company in 1975, with an estimated 4.36 billion barrels of reserves in place. Coming on stream in 2009 and listed on Iraq’s 2009-2010 fast-track plan, which aimed to raise its output to about 50,000 bpd, the first half of 2009 saw ENI, Nippon Oil, Chevron, and Repsol submitting bids to develop the field on an Engineering Procurement Construction (EPC) contract basis, with a consortium comprised of Nippon Oil, Inpex, and JGC Corporation looking set to win the contract before negotiations broke down again. The departure in 2014 of the divisive figure of Shia Islamist Nouri al-Maliki as prime minister, and his replacement by the seemingly more inclusive, although also Shia, Haider al-Abadi led to optimism in Iraq that the Nasiriyah project could move ahead again, but these hopes were also dashed.

China has long seen Nasiriyah as an important part of its overall plans for Iraq, which are essentially to turn it into a client state, as it has done with Iran, to create one giant oil and gas station for it in the Middle East, which it can also use for geopolitical pressure purposes against the U.S. In Iran’s case, China has been successful so far into effecting this transformation from it as sovereign state into a Middle Eastern equivalent of Hong Kong (a Special Administrative Region of China) through the all-encompassing ‘Iran-China 25-Year Comprehensive Cooperation Agreement’ , as first revealed anywhere in the world in my 3 September 2019 article on the subject and analysed in full in my new book on the new global oil market order. China is using the same sort of arrangement for Iraq, as evidenced in the equally all-encompassing ‘Iraq-China Framework Agreement’ of 2021. This in turn, was an extension in scale and scope of the ‘Oil for Reconstruction and Investment’ agreement signed by Baghdad and Beijing in September 2019, which allowed Chinese firms to invest in infrastructure projects in Iraq in exchange for oil.

Following this, Iraq approved nearly IQD1 trillion (US$700 million) for infrastructure projects in the city of Al-Zubair in the southern Iraq oil hub of Basra. The Al-Zubair announcement came around the same time as the awarding by Baghdad of another major contract to another Chinese company to build a civilian airport to replace the military base in Nasiriyah – the capital of DhiQar Province. This airport project, China announced, would include the construction of multiple cargo buildings and roads linking the airport to the city’s town centre and separately to other key oil areas in southern Iraq, which it now controls. In the later discussions involved in the 2021 ‘Iraq-China Framework Agreement’, it was decided unanimously by both sides that the airport could be expanded later to be a dual-use civilian and military airport. The military component would be usable by China without first having to consult with whatever Iraqi government was in power at the time, a senior source who works closely with Iraq’s Oil Ministry exclusively told OilPrice.com at the time.