China Tightens Grip on Iraqi Oil, Deepening Economic, Political Ties

China's presence in Iraq's energy sector strengthens as Chinese companies secure five additional exploration bids for Iraqi oil and gas reserves. These wins, alongside previously acquired licenses, signal China's significant role in Iraq's hydrocarbon industry. Despite the absence of US oil companies, the licensing round aims to boost domestic energy production, particularly natural gas, to reduce reliance on Iranian imports.

China Bolsters Position in Iraqi Oil and Gas Exploration, Furthering Economic and Political Ties

As Iraq's second day of hydrocarbon exploration licensing progressed, China-based companies secured five additional bids to explore the country's vast oil and gas reserves, the Iraqi oil minister announced on Sunday.

China Dominates Bidding

Chinese businesses have emerged as the sole international players to acquire bids thus far, securing licenses for ten oil and gas fields since Saturday. In addition, the Iraqi Kurdish company KAR Group has also secured two licenses.

Over 20 firms, representing a diverse mix of European, Chinese, Arab, and Iraqi companies, had pre-qualified for the exploration licenses, which cover 29 projects. The overarching objective is to boost production for domestic consumption.

Natural Gas Ambitions

Iraq initiated this sixth licensing round with the explicit aim of enhancing natural gas output, which it intends to utilize as fuel for power plants currently reliant on Iranian gas imports. However, the absence of bids for at least six gas-rich areas may hinder these efforts.

Absence of US Companies

Conspicuously, no US oil corporations have participated in the bidding process, despite Iraqi Prime Minister Mohammed Shia meeting with executives from US companies during an official visit to the US last month.

Strengthening China-Iraq Ties

China's CNOOC Iraq has secured the bid to develop Iraq's Block 7, spanning the central and southern provinces of Diwaniya, Babil, Najaf, Wasit, and Muthanna, according to oil minister Hayan Abdul Ghani.

Other Chinese companies that have won bids include ZhenHua, Anton Oilfield Services, and Sinopec, respectively assigned to develop the Abu Khaymah oilfield in Muthanna, the Dhufriya field in Wasit, and the Sumer field in Muthanna. China's Geo-Jade has also acquired the bid for oil exploration in the Jabal Sanam field in Basra province, as per the Iraqi oil ministry.

Iraq's Oil Sector Challenges

Iraq, OPEC's second-largest oil producer after Saudi Arabia, has faced obstacles in developing its oil sector due to contract terms deemed unfavorable by major oil companies, periodic military conflicts, and increasing investor focus on environmental, social, and governance (ESG) factors.

China's Growing Influence

In recent years, China has forged closer commercial and political ties with Iraq. As a major oil importer, China seeks consistent energy supply from the oil-rich nation. Conversely, Iraq welcomes Chinese investment to rebuild its infrastructure after years of conflict.

Beijing has provided loans and construction contracts to Baghdad, solidifying its position in the region. Major Chinese corporations, such as Zhenhua Oil, have secured contracts to develop Iraqi oil reserves. This mutually beneficial partnership grants China access to resources while aiding Iraq's reconstruction efforts.

However, concerns have been raised about China's expanding influence in the Middle East. Critics argue that Beijing's "no-strings-attached" partnerships undermine democracy and human rights. As ties between China and Iraq deepen, the world observes the unfolding dynamics between an economic powerhouse and a resource-rich nation.

Iraq Supports OPEC's Oil Output Cuts

In a separate development, Iraq's oil minister stated on Sunday that the country remains committed to the voluntary oil production cuts agreed upon by the Organization of Petroleum Exporting Countries (OPEC) and is willing to collaborate with member countries to achieve greater stability in global oil markets.

The minister's comments come after he indicated on Saturday that Iraq had made sufficient voluntary reductions and would not agree to further cuts proposed by the broader OPEC+ producing group at its meeting scheduled for early June.

"The oil ministry is keen to work with member states to achieve more stability in the global oil market by agreeing on voluntary reduction programs," Hayan Abdul Ghani told the state news agency.

Abdul Ghani clarified to reporters on the sidelines of the oil and gas licensing round in Baghdad that OPEC's voluntary reductions are subject to member agreement and that Iraq, as an OPEC member, will abide by the organization's decisions.

"It is necessary that we adhere to and agree with any decisions made by the organization," he emphasized.

According to sources familiar with the matter, the OPEC+ group, which comprises OPEC, Russia, and other non-OPEC producers, may extend some voluntary output cuts if demand conditions do not improve.