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Not long ago, Robert Kaplan, the well-known American writer, “complained” in The Wall Street Journal, saying: “... We have liberated Iraq so that Chinese firms can extract its oil.” The sentiment that was expressed by Kaplan was in fact reflecting the evolution of the situation in Iraq, where the Chinese presence was rising strongly. Tellingly, Beijing’s position in Iraq evolved quickly, from among the most outspoken of critics of the 2003 U.S.-led invasion to topple Saddam Hussein, to emerging as one of the biggest economic beneficiaries of the war in Iraq.
China’s Catching-up Game
Ten years after the American invasion, Iraq turned into an important energy / trade partner for China. Indeed, the trade between Iraq and China doubled almost 34 times. The volume of bilateral trade between the two states soared to $17.5 billion by end-2012 from small amount of $ 517 million in 2002. In the same period, the trade between Iraq and the U.S. increased only 5.6 times. The bilateral trade between both countries rose to $ 21.6 billion by end-2012 from $ 3.8 billion in 2002. Last year, China was both the second-largest purchaser of Iraqi exports, $ 12.6bn, (after the U.S. $ 19.6bn) and the second-largest supplier of imports, $ 4.9bn, (after Turkey $ 10.8 bn), according to latest data from the U.N. Comtrade data. The United States still Iraq’s largest trade partners, however the current trends suggest that China will soon overtake America to become Baghdad’s top trade partner.
Beijing is betting big in Iraq. The view from Beijing is that a stable Iraq is good for the region and for China’s core economic interests. According to business Monitor International, (BMI), in November 2008, China and Iraq finalised a $ 3bn oil service contract for the development of the Ahdab oil field. The State-run Chinese National Petroleum Co. (CNPC) originally signed a Production Sharing Agreement (PSA) for the field in 1997. This is the first deal from the Saddam Hussein era to be honoured by the new Iraqi regime. While in November 2009, CNPC won a large stake in a $ 15 billion deal to develop the Rumaila oil field in southern Iraq, thought to be the second largest in the world. In December 2009, CNPC was awarded a 50% stake in the development of the Halfaya oilfield located southern Iraq. Halfaya is proven to hold 4.1 billion barrels of recoverable reserve and has production potential of 200 thousand to half million bpd. In February 2010, Beijing cancelled 80% of Iraq’s $8.5 billion debt to China, a move designed to further Chinese business interests in the country. In June 2012, CNPC finished the first phase of the Halfaya and increased production from 3,000 bpd to 100,000 bpd, 15 months ahead of schedule.
CNPC currently holds a 37.5% stake in the Halfaya field, a 75% stake in the al-Ahdab field and a 37% stake in the Rumaila field. Wang Dongjin, vice president of CNPC, estimates that Chinese state companies are currently helping in the production of some 1.6 million barrels a day in Iraq, more than half that country’s total output. Chinese companies are also producing 120,000 barrels a day from Halfayia and some 140,000 barrels a day from Ahdab. China’s initial success in Iraq also extends to the Kurdish Autonomous Region. In August 2009, the state-run, China Petroleum & Chemical Corporation (Sinopec) agreed to acquire Swiss energy company “Addax” in a $ 7.2bn deal. The deal has been approved by the Chinese government and it became effective on October 5, 2009. Subsequently, Sinopec gained access to two oil fields in northern Iraq; as Addax has a 30% stake in PSA for the Taq field ‘and’ a 26.67% working interest in the Sangaw North PSC oil field in Kurdistan. Additionally, there are also speculations (NASDAQ news) that China’s largest oil and gas producer - PetroChina - is interested in joining Texas-based ExxonMobil Corporation, for the development of West Qurna oilfield in southern Iraq. Both parties are yet to finalize on the size of stakes to be shared.
However, the EIU does not expect a repeat of the sectarian conflict that engulfed Iraq in 2006-07. Indeed, despite the gloomy political outlook, the IMF projects that Iraq to register the highest economic growth rates in the world, where the GDP is expected to expand rapidly in 2013 by more than 14% and Iraq’s economy to grow by a robust 10-11% on average during 2013-2017, driven primarily by rising oil production. This provides enormous opportunities for Chinese companies to expand in Iraq’s markets.