China And Russia Execute A Pincer Movement Around Iraq’s Biggest Oil Assets

Yves here. One needs to discount some of Simon Watkin’s remarks here, particularly his assertion that China has imminent plans for Taiwan’s “repatriation”. Perhaps some China hawks have been bending his ear. However, Watkins does have deep oil industry contacts in the Middle East. so his commentary about developments in the region are worth considering seriously. The US completely botched our military adventure in Iraq, both wrecking the country and failing to rebuild its aging oil infrastructure for our and the local’s profit. So no wonder China and Russia can gain ground there.

By Simon Watkins, a former senior FX trader and salesman, financial journalist, and best-selling author. He was Head of Forex Institutional Sales and Trading for Credit Lyonnais, and later Director of Forex at Bank of Montreal. He was then Head of Weekly Publications and Chief Writer for Business Monitor International, Head of Fuel Oil Products for Platts, and Global Managing Editor of Research for Renaissance Capital in Moscow. He has written extensively on oil and gas, Forex, equities, bonds, economics and geopolitics for many leading publications, and has worked as a geopolitical risk consultant for a number of major hedge funds in London, Moscow, and Dubai. Originally published at OilPrice

  • Through a large number of smaller deals, Russia and China are looking to increase their influence in the crucial Iraqi upstream oil sector.
  • The exploration and development contracts for China are done through a backdoor method, with firms that are less well-known than the big state players that attract little or no publicity.
  • China regards TotalEnergies’ $27 billion deal as a huge threat to its plans to close the net around Iraq’s oil and gas sector.

Crucial to Iraq’s plan to increase its oil production capacity to around 7 million barrels per day (bpd) by 2027 are the supergiant fields of Rumaila and West Qurna 2, as analysed in depth in my new book on the new global oil market order. Within the last two weeks, Russian state oil proxy Lukoil agreed to dramatically increase output from West Qurna 2. At around the same time, Daqing Drilling Engineering Company – a subsidiary of Chinese state oil proxy China National Petroleum Corporation (CNPC) – was awarded a US$192 million engineering, procurement, and construction contract for Rumaila. Both critical developments in Iraq’s oil sector follow a comment from a very high-ranking official from the Kremlin – related exclusively to at the time by a senior source in the European Union’s (E.U.) energy security apparatus – that: “By keeping the West out of energy deals in Iraq – and closer to the new Iran-Saudi axis – the end of Western hegemony in the Middle East will become the decisive chapter in the West’s final demise”. The key question now for U.S. and its allies is what happens next in Iraq?

From China’s and Russia’s perspective, things are going very well indeed, based on the plan they put into action after the U.S.’s unilateral withdrawal from the Joint Comprehensive Plan of Action (JCPOA, colloquially ‘the nuclear deal’) with Iran in May 2018. At the broadest level, the objective was to control all of Iran’s massive oil and gas resources between them, and then to extend this influence into Iraq, and then into Saudi Arabia so that they controlled all their oil and gas resources too. This would provide China with all the energy it needed to power its economic growth into the future so that it could overtake the U.S. as the world’s leading economic superpower by 2030 (the ‘hard’ target date at that point in 2018). As also analysed in depth in my new book, it would allow China sufficient reserves not to worry about any supply disruptions caused by Western sanctions if it ‘repatriated’ Taiwan by 2024 (the ‘soft’ target date at that point). Having secured dominance across Asia Pacific, and with economic growth propelled further on the back of that, China saw little problem to its securing at least equal footing with the U.S. as the world’s top superpower. A key strategy to enable China to secure the oil and gas resources of Iran, Iraq, and Saudi Arabia was to do so in as surreptitious a way as possible, in order not to provoke a direct confrontation with the U.S. until it felt itself ready to win in such a scenario. Russia’s key role in this phase of the plan was to act more overtly and aggressively to test where the boundaries of the West were in the event of certain provocations by the China-Russian alliance. In many ways, Russia’s invasion of Ukraine was part of this tactic.

China’s path towards realising its objectives was made much easier by the U.S. withdrawal from the JCPOA. Within just three months of this, China and Iran had agreed in principle nearly all the key energy, financial, and military cooperation policies that would be enshrined a year later in the ‘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. Aside from the obvious energy advantages to China of such an agreement, it was also aware that this pact would create an enormous perceived security threat to Iran’s arch-historical enemy, Saudi Arabia. From that point, then, China capitalised on Saudi Arabia’s fears to further leverage the relationship it had developed with Saudi Crown Prince Mohammed bin Salman (MbS) via a face-saving offer over the Aramco IPO that enabled him to become heir to King Salman, as also analysed in the book. A spate of deals was done between Saudi Arabia and China, to the point that by the time of Russia’s invasion of Ukraine in February 2022, Saudi Arabia was already so aligned to China that Saudi Aramco’s chief executive officer, Amin Nasser, said: “Ensuring the continuing security of China’s energy needs remains our highest priority – not just for the next five years but for the next 50 and beyond”. These developments, as China had anticipated back in May 2018, culminated in the 10 March 2023 agreement between Iran and Saudi Arabia to restore relations, brokered and monitored for the future by Beijing.

The longstanding division of tasks between China and Russia is evident in the current phase of their takeover of Iraq’s oil and gas sector. Well-known Russian oil and gas firms are present in major exploration and development contracts across the country, including in the semi-autonomous region of Kurdistan, which it uses to create trouble – and therefore leverage – with southern Iraq. West Qurna 2 is a key example of this approach. China, conversely, remains content to play the quieter, longer game, in order not to provoke direct confrontation with the U.S. and its allies. Hence, the multiple awards of anodyne-sounding ‘contract-only’ projects – such as drilling-only, field maintenance-only, parts replacement-only, storage-only, technology-only, and so on – to unknown Chinese firms. “The exploration and development contracts for China are done through this backdoor method, with firms that are less well-known than the big state players that attract little or no publicity but, as all companies in China are part of the state and are legally bound to work towards what they are told to do by the Communist Party, it doesn’t make any difference to the eventual outcome,” a senior source who works closely with Iran’s Petroleum Ministry exclusively told

It is a testament to the effectiveness of China’s low-profile strategy in several Iraqi oilfields that although Daqing Drilling Engineering Company has been present in the Rumaila field in one capacity or another since 2010, it has attracted no attention whatsoever. This is even odder, as Rumaila is Iraq’s biggest oilfield, with an estimated 17 billion barrels in proven reserves, and current production of around 1.4 million bpd. Crucially, though, in China’s and Russia’s plans for Iraq, Rumaila – which, together with Kirkuk, has produced around 80 percent of Iraq’s entire cumulative oil production to date – urgently needs a reliable system through which the pressure in its wells can be maintained, otherwise production is liable to plummet. The system long envisaged for precisely this purpose is the Common Seawater Supply Project (CSSP), which involves taking seawater from the Persian Gulf and transporting it to key oil production facilities such as Rumaila to boost pressure and sustain production. A functioning CSSP running into Rumaila is absolutely vital to Iraq’s target of hitting 7 million bpd oil production in the first phase, and then boosting it upwards from there. China’s CNPC – the parent of the Daqing Drilling Engineering Company active in Rumaila – was long one of the two top contenders (along with the U.S.’s ExxonMobil) for putting the CSSP into place, before it was replaced by Western supermajor TotalEnergies as part of its US$27 billion four-pronged megadeal.

According to the E.U. energy security source, China regards this deal as a huge threat to its plans to close the net around Iraq’s oil and gas sector, and it also believes it might threaten some of its activities in the country’s chief regional sponsor, Iran. Specifically, Iran and Iraq share many of their major oil reservoirs and that many of the two countries’ oilfields are just two parts of these same oil reservoirs. For example, Iran’s Azadegan oil reservoir (split into North and South fields) is the same reservoir upon which sits Iraq’s Majnoon oilfield. The same feature applies to Azar (on the Iran side)/Badra (on the Iraq side), Yadavaran (Iran)/Sinbad (Iraq), Naft Shahr (Iran)/Naft Khana (Iraq), Dehloran (Iran)/Abu Ghurab (Iraq), West Paydar (Iran)/Fakka/Fauqa (Iraq), and Arvand (Iran)/South Abu Ghurab (Iraq), plus many others. “If the French [TotalEnergies] are successful in rolling out the CSSP – which they certainly have the capability to do – then the pressure will be on the Iraqi government to plug all of the major fields into it at some point to maintain pressure in the wells, and that would force out the Chinese,” said the E.U. source. “So, these two sudden announcements [West Qurna 2, and Rumaila] will be directly connected to China beginning to take a more overt stance in the country, and to really start to flex its muscles with the [Iraqi] government over its long-term interests there,” he concluded.

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  1. Terry Flynn

    Totally get where this is coming from. Plus I don’t necessarily disagree. I just also wonder to what extent the “inverted population pyramid” might reduce Chinese long term influence (but increase pressure to get short term gains).

    Plenty of well sourced and actuarially solid projections showing India, not China to be the “population based powerhouse” soon. China could well be “building defence”…. But if it’s in reactive mode this might indicate instability.

    1. Schopsi

      It seems that for most countries with a massive and growing population said population is still more a hindrance and risk than an actual asset.

      A (growing?) number of less optimistic projections about India’s future I chanced upon make me doubt if that is actually going to change anytime soon, if ever.

      And with cimate change and ecosystem collapse, deteriorating soil, decteasing freshwater availability, etc, etc, it sadly seems more likely that Malthus might have the last laugh after all.

      1. some guy

        And all that Iraqi oil which China, Russia and etc. will help Iraq to get pumped up and burned will make all those things happen faster and make Malthus laugh even sooner.

    2. Revelo

      Africa is the real population based powerhouse: think South Sudan, Niger, Burundi, etc…

      Seriously, population isn’t necessarily that important anymore. The west has made an aging population a problem issue by all sorts of income distribution schemes that strangle the productive economy to keep useless eaters alive a few extra years. Whereas in East Asia, old people can live a dignified life in villages for like $10/day, with healthy old people caring for the unhealthy. As long as the shrinking young generations of China, Japan, Korea are healthy, intelligent and educated, robots will bail out those economies.

      With respect to the growing populations of India and Africa (and Phillipines, Oman, etc), this is only beneficial in any reasonable sense if those young people can be fed and put to work constructively. More likely, the global south is going to be the scene of endless warfare, pestilence and starvation in the decades to come, precisely because of being population powerhouses. Or maybe global warming will increase rainfall and make the Sahara bloom and thereby bail out India and Africa.

      1. NoFreeWill

        Robotics is not the solution you think it is. Even at the very high end of the field they are only capable of replacing very specific workers in very specific tasks. And that requires massive capital investment. Immigration is a solution, which is why still-very-xenophobic Japan is biting the bullet and importing workers on a mass scale. Canada, for another example, increased it’s immigration quota from 2 to 3 million a year or something like that recently.

        Not sure what you’re referring to here “income distribution schemes that strangle the productive economy to keep useless eaters alive a few extra years.”, but if you think Social Security should be gotten rid of and that old people are useless eaters who should starve to death, not sure why we should take you seriously on anything.

        1. Geoffrey

          I think Ravelo’s point on “useless eaters” is to contrast the West’s (warehousing) and East’s (socially productive) treatment of old people. To my mind the pjerotive is a sarcastic swipe a the Western system. Being in and out of oldfolks homes all the time I see the “income distribution” effect: older folks and their families are bled of their savings and housing equity (for good or ill housng wealth in Anglo-Saxon countries has been a vehicle for and a store of middle class wealth/savings for the last several decades) while private equity take over and expand the nursing home sector to exploit the rediculous costs thru tax breaks and running the profits for their wealthy investors thru’ tax havens. I project that within a generation, taken together with stagnant incomes, precarious careers, and QE/ZIRP fueled land/housing values, and the aforementioned financial exploitation of the elderly (and their families), most middle class will have lost all of is housing wealth/capital and be at the mercy of renting accomodation from the wealthy.

    3. Piotr Berman

      With decreasing ratio of workforce/population, some drastic measures may be enacted, namely increasing labor productivity (not just migrating peasants to factories!? horror :-( ). It helps that at that time infrastructure and education quality allows for that.

  2. The Rev Kev

    I can easily see why Iraq wants to play ball with both Russia and China, even though they are both superpowers. Ever since 2003, when Iraq sells its oil it is forced to send that money to a single bank account in the US of the Federal Reserve. It has no choice. But to make matters worse, the US is using this power to screw around with the Iraqi economy by imposing all sorts of ill-considered decrees on the Iraqi to the detriment of the Iraqi economy. I suspect that this is an effort to keep that country weak. This recent article gives a good recap-

  3. John Steinbach

    IIRC, when the US invaded & occupied Iraq, Russia & China were heavily involved in Iraqi oil production. Billions of dollars in contracts were abrogated without recompense, & China & Russia. were driven out in favor of US interests.

    1. James

      When other countries nationalize oil fields its called stealing. When we do it – it’s called FREEDOM.

      1. hk

        Other countries nationalize resources within their borders. We “free” resources in other countries.

  4. Susan the other

    I don’t understand the under reported Biden visit to KSA to inform MBS that Saudi oil must be sold in US dollars. (Or else?). How will that affect the deal between China and KSA to deal in yuan? It is at least becoming more visible that the world has been in a low-grade war for oil, both access to and markets for, since 9/11. And the above twist, insinuating that Russia is the aggressor, for oil resources, in the Ukraine war is gaslight. Russia has been defending its own oil interests – the obvious fact that their defense threatens our plans really can’t be disguised. And Ukraine has become a first-class debacle. It’s far too tragic to refer to it as a fiasco.

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