Ever since the U.S. signalled through its effective withdrawal from Syria that it now has little interest in becoming involved in military actions in the Middle East, the door has been fully opened to China and Russia to advance their ambitions in the region. For Russia, the Middle East offers a key military pivot from which it can project influence West and East and that it can use to capture and control massive oil and gas flows in both directions as well. For China, the Middle East – and, absolutely vitally, Iran and Iraq – are irreplaceable stepping stones towards Europe for its era-defining ‘One Belt, One Road’ project. Earlier this week an announcement was made by Iraq’s Oil Ministry that highlights each of these factors at play, through a relatively innocuous-sounding contract award to a relatively unknown Chinese firm.
Specifically, it was announced that China Petroleum Engineering & Construction Corp (CPECC) has been awarded a US$121 million engineering contract to upgrade the facilities that are used to extract gas during crude oil production at the supergiant West Qurna-1 oilfield in Iraq, 50 kilometres northwest of the principal oil hub of Basra. The project is due to be completed within 27 months and aims to increase the capture of gas currently being flared across the site. Two factors that were not highlighted in the general announcement were firstly that CPECC is a subsidiary of China’s principal political proxy in the oil and gas sector, China National Petroleum Corp (CNPC), and secondly that the gas capture project will also include the development of the oil reserves at West Qurna 1. The current level of oil reserves at West Qurna 1 is just under nine billion barrels but, crucially, the site is part of the overall massive West Qurna reservoir that comprises at least 43 billion barrels of crude oil reserves. “For China, it’s always all about positioning itself so that it is perfectly placed to expand its foothold,” a senior oil and gas industry source who works closely with Iraq’s Oil Ministry told OilPrice.com earlier this week. Related: Is Today’s Oil Price Plunge A Sign Of Things To Come?
The United States went to war in Iraq because it wanted to get an assured supply of inexpensive oil for itself and its oil companies. I have argued in my book (Over a Barrel, 2004, p.191) that the invasion of Iraq in 2003 was undoubtedly about oil. Even the veteran ex-chairman of the US Federal Bank Alan Greenspan has admitted in his memoirs (The Age of Turbulence, 2007, page 463) that the Iraq war was largely about oil.
And despite winning the military battles because of its overwhelming force, the United States lost the war. The real winners were China in terms of emerging as the world’s largest investor in Iraq’s oil industry without even firing a shot and Iran in terms of its intrusive political influence on Iraq.
Since 2009 China has been involved in the development of two of Iraq’s super-giant oilfields, namely Rumaila with proven oil reserves of 17 billion barrels (bb) and West Qurna with 43 bb of reserves and now it is extending its involvement to the super-giant Majnoon oilfield with estimated 38 bb of reserves.
China has been awarded a contract to upgrade the facilities that are used to extract gas during crude oil production at West Qurna-1 oilfield. The project is due to be completed within 27 months and aims to increase the capture of gas currently being flared across the site and also enhance oil production as well.
The capture of the flared gas in West Qurna will enable Iraq to stop burning some of its crude oil production to generate electricity and reduce its dependence on Iran for electricity imports.
Russia and China are taking advantage of a growing global disenchantment with the United States and are therefore trying to fill a vacuum created by an erosion of the United States’ economic, geopolitical and moral influence. From the shifting sands of the Middle East to Venezuela’s defiance to the rising power of China in the Asia-Pacific region and Russia’s in the Middle East, the United Sates is starting to look like a spent force while the strategic alliance between China and Russia is not only on the rise.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London