China's Oil Gains in Iraq: Strategic Win or Potential Quagmire?, 24 MAY

China's Oil Gains in Iraq: Strategic Win or Potential Quagmire?

Shafaq News/ An international report warned that China is hastening to fill the power vacuum in Iraq by improving its energy security and global influence, suggesting that the results might be counterproductive even if Iraq is the primary beneficiary.

South China Morning Post said that Chinese firms recently won the lion’s share of licences for oil and gas exploration that Iraq solicited to wean its power plants off natural gas from Iran.

“The news demonstrates China’s drive to secure energy supplies as it struggles to reverse slowing growth at home. Beijing is seizing opportunities in the Middle East left by the West’s conflicting ambitions to deter foes and reassure allies. Wang Yi, China’s chief diplomat, has doubled down on the government’s pro-Palestinian stance.” The report said.

“Meanwhile, American and European companies are apprehensive about making long-term investments in war-ravaged countries with rampant corruption despite these nations’ lucrative reserves of gas and oil. They aren’t competing with China for oil contracts. Americans gave lives, time and money yet China is benefiting.”

However, China’s strategy in Iraq could prove to be a negative-sum game on many fronts – political, trade, influence, and more – given the power dynamics in the region.

“Many treacherous hazards confront statecraft, as the United States and Europe well know. China will face challenges in Iraq that are the result of antagonisms that have deepened over the past few centuries. The late US statesman Henry Kissinger wrote in 2014 that in the Middle East “political, sectarian, tribal, territorial, ideological, and traditional national interest disputes merge”.”

According to the report, today, the war in Gaza promises an impossible outcome. Throughout the Middle East, terrorism erupts in societies roiled by deep-seated religious tensions that unstable governments cannot defuse. Gulf countries are rising in power and ambition as they assert their independence.

“China isn’t absolved from these difficulties by stressing neutrality and dialogue facilitation while keeping its distance from local groups. It succeeds in Iraq because it doesn’t get bogged down in internal politics. Can China continue to prosper if it doesn’t take sides with local actors?”

“History shows repeatedly that geostrategic power vacuums are like black holes. Countries leverage various means – often economic incentives – to gain influence when rivals partially retrench or collapse, but not always. Sometimes remaining on the sidelines is a better strategy.” The report pointed out.

US President Joe Biden made note of China’s growing Middle East presence in 2022 while visiting Saudi Crown Prince Mohammed bin Salman. “We will not walk away and leave a vacuum to be filled by China, Russia or Iran,” Biden said. “And we’ll seek to build on this moment with active, principled American leadership.”

Estimates of US troops stationed in the Middle East go up to more than 50,000, with Qatar hosting the largest US base. There was unprecedented security cooperation between Washington, Tel Aviv, Riyadh and Abu Dhabi after Iran targeted Israel with missile and drone attacks last month. In comparison, China’s foothold in the region is not as strong.

China and Iraq last year marked 65 years of bilateral relations which began after Iraq’s coup of 1958, when General Abdul Karim Qasim deposed the Hashemite monarchy and Beijing recognized his “revolutionary” government. Throughout Iraq’s war with Iran in the 1980s, China sold weapons to both sides.

“Even with those efforts, China’s relations with Iraq were limited until the last two decades. Alongside Beijing’s growing need for oil, factors such as Iraq’s need for liquidity, reconstruction following years of conflict, the effects of low oil prices and “rightsizing” of US forces in Iraq pushed the two closer together.”

The report listed that the recent milestones in their relationship are many. A 2009 agreement gave China National Petroleum Corporation a 37 per cent stake in the Rumaila oilfield, Iraq’s largest. By 2013, China had a hand in more than half of Iraq’s daily oil output. In 2010, the Chinese government cancelled 80 per cent of debt Iraq owed Beijing. Videos in 2015 showed the Iraqi military operating Chinese supplied CH-4 drones.

Iraq and China signed an oil-for-reconstruction deal in 2019, with Beijing funding infrastructure projects in exchange for 100,000 barrels per day. As of February, Chinese firms oversee two-thirds of Iraq’s oil production. Meanwhile, Iraq was the top target for Belt and Road Initiative financing in 2021, receiving US$10.5 billion for infrastructure projects. Last year, Iraq’s central bank announced it would settle trade with China directly in yuan, though the oil trade was excluded.

Entanglements like these inevitably become labyrinthine, with the objectives lost and unravelling increasingly difficult. Like machines with many moving parts, maintenance and repairs are needed more frequently and pose greater difficulty. Add to that the complications from uncertainties, volatility and unforeseen events, such as Iranian President Ebrahim Raisi dying in a helicopter crash.

“All this leaves China with a difficult balancing act: it must mind its partners’ interests and distance itself from local actors, while keeping an eye on mounting economic vulnerabilities at home. Beijing could find itself elbowed out of Iraq as Gulf countries – especially Saudi Arabia, Qatar and the United Arab Emirates – provide huge investments in an effort to amass regional power, ensure stability and isolate Iran.” The report concluded.

Some of these same Gulf countries are signing deals with China as part of the Belt and Road Initiative, yet their ambitions will limit Beijing’s room to act unilaterally. Regional instability, such as the Houthi attacks on vessels in the Red Sea, also raises the prospect of China needing cooperation with the US, Europe and Gulf countries to secure the flow of oil and gas while protecting its investments. That adds complications to fierce tensions with the West over trade.

Much like the West now, China will find itself increasingly seeing progress swept away by centuries-old hostilities. Beijing might have taken on more than it can manage.