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Iraq balks at greater Chinese control of its oilfields -Breaking


© Reuters. FILEPHOTO: Iraqi oil minister Ihsan Abdul jabbar poses during Lukoil energy events in Baghdad (Iraq), November 11, 2021. REUTERS/Thaier Al-Sudani

Sarah McFarlane, Aref Mohamed

LONDON/BASRA – Last year, the Iraqi Oil Ministry blocked three potential deals which would have allowed Chinese firms greater control over Iraq’s oilfields. It also led to an exodus by international oil companies that Baghdad hopes will help it invest in its creaking economy.

Plans by Lukoil Russia and the U.S. Oil Major have been in place since 2021. Exxon Mobil (NYSE:) To sell stakes of major fields to Chinese state-backed companies. According to industry officials and Iraqi oil ministers, the buffers have been breached by interventions from Iraq’s oil ministry.

British BP (NYSE 🙂 also considered selling a stake in the company to a Chinese-owned state-run firm, though officials convinced it to remain in Iraq at present.

China is the largest investor in Iraq and Baghdad received $10.5 billion last year from Beijing’s Belt and Road initiative to finance infrastructure projects, including an airport and power plant.

Baghdad, however, has made a decision to stop further Chinese investments in oilfields.

According to officials from state-owned firms and the Iraqi government, they are worried about further consolidation of oil fields by Chinese companies. This could lead to a faster exodus for Western companies. Seven Iraqi oil executives and oil industry officials spoke with Reuters during interviews.

Three people who were familiar with the situation said that Lukoil was stopped last year by officials from state-run oil companies. They wanted to sell a stake in West Qurna 2 (one of Iraq’s biggest fields), to Sinopec (NYSE).

According to people who were familiar with this matter, Iraqi officials also intervened to stop Chinese state-backed enterprises buying Exxon’s stake at West Qurna 1 in China and persuade BP not to sell its interests in Rumaila’s giant oilfield to a Chinese corporation.

Rumaila combined with West Qurna produces about half the oil coming from Iraq. It also has the fifth largest global oil reserves.

The Iraqi oil ministry declined to comment on the agreements or its role in any intervention.

Two government officials stated that the government was concerned about China’s rise making Iraq less appealing for foreign investment.

China’s growing relationship with Iran has helped it position itself in Iraq, due to Tehran’s military and political influence. However, officials claim that the oil ministry is wary about giving up more control of the country’s most important resources.

Another official from Iraq stated that they don’t want Iraq’s energy sector to be labeled as China-led. This attitude was agreed upon by the government and the oil minister.


After Shell, the British oil company (LON) made the 2018 decision to pull out of Iraq’s Majnoon Oilfield in 2018, it has now initiated interventions regarding BP’s, Exxon’s and Lukoil positions in Iraq.

These interventions are also a sign of a change in attitude after Chinese firms won the majority of energy contracts and deals over the last four years. Officials from Iraqi Oil claimed that Chinese companies have taken lower profits than their rivals.

According to a statement sent by state-owned China National Offshore Oil Corporation, (NYSE:)), “All rules regarding tenders were jointly developed by the Chinese side and were conducted in transparent and fair principles.”

However, it is risky to push back against any further Chinese investments. There’s no guarantee that others will take up the challenge and the government requires billions of dollars in order to rebuild its economy following the defeat of the Islamic State Insurgency in 2017.

The World Bank estimates that oil revenues have accounted, over the last decade, for 99 percent of Iraq’s exports and 85%, respectively, of Iraq’s gross domestic product (GDP) in the past 10 years.

After the 2003 invasion by the U.S., oil companies jostled for control of Iraq’s huge oilfields. Now they want to make more money elsewhere and focus their efforts on the energy transition. According to oil executives, they want more favorable terms to help develop new fields.

China is one the top buyers of Iraqi crude oil. Chinese state-owned companies hold a significant share in Iraq’s oil sector.

According to people who were familiar with it, Lukoil had notified the government that they wanted to sell some of their stakes in West Qurna 2 and Sinopec last summer.

Sinopec has never been mentioned as a potential buyer for Lukoil’s stake. A request to comment was not received from the Chinese company.

Iraq, according to a source with knowledge, offered Lukoil a sweetener in order to convince him that he should stay.

After Lukoil had indicated that it would consider a sale several months ago, Baghdad approved the plan to create Block 10 where the Russian oil company discovered an oil well in 2017. According to a source, Lukoil decided not to sell its West Qurna 2 stake.

Lukoil didn’t respond to our request for comment.


Two sources familiar with the matter stated that BP also spoke to the government in recent years regarding its options, which included leaving Iraq. Eventually, BP settled on a spinoff of its Rumaila stake into a standalone business last year.

Abdul Jabbar (oil minister) led efforts to get BP to remain in the country. The government was concerned that China National Petroleum Corporation would take over BP’s share. They said that Baghdad also wanted to retain such an important international oil company in Iraq.

BP did not respond to our request for comment.

When Exxon flagged its intention to leave Iraq in January 2021, meanwhile, U.S. officials told Exxon they were unhappy with the prospect of the biggest U.S. oil major pulling out – for reasons that echoed Iraqi concerns.

According to a source familiar with the conversation, officials from the State Department said Exxon’s exit could leave a vacuum that Chinese companies can fill. U.S. officials asked Exxon how he would stay in Iraq. The person declined further information.

According to a spokesperson for the State Department, “We engage regularly with our Iraqi counterparts in order foster an environment that encourages private sector investment.”

According to people familiar, Exxon had reached an agreement with PetroChina and CNOOC for West Qurna 1’s sale, according to reports.

CNOOC or CNPC didn’t respond to questions about the transactions.

According to people who are familiar with the matter, Exxon’s share was worth between $350 and $375 million. However, Iraq does not have the power to approve oilfield deal transactions and has therefore vetoed this transaction.

Exxon asked for arbitration from the International Chamber of Commerce to resolve its dispute with Basra Oil Co.. Exxon claimed that Basra Oil Co. had violated the contract it signed for West Qurna 1 but had reached a reasonable agreement, according people familiar with this matter.

Exxon then approached the oil ministry for help. Exxon was offered by the ministry to Western companies, including Chevron Corp. (NYSE:)

There was no interest. Baghdad refused to let the Chinese firms take the stake. Instead, he said the Iraq National Oil Company, which is still being revived from its long-term demise, would instead be taken by the government.

Spokeswoman said that Exxon will “continue to work closely with constructively in order to achieve an equitable resolution.”


The majority of Iraq’s oil production is based on technical services contracts, which are between state-backed Basra Oil Co. (foreign companies) and other companies. These costs can be repaid along with a fee per barrel for developing fields. However, Iraq still retains the rights to the reserve.

Deals that offer a part in the profits are preferred by oil majors over a flat fee.

According to a Chinese oil executive, who is intimately familiar with CNPC’s international investments, China’s priority should be securing oil supplies for China’s expanding economy.

Some signs indicate that Iraq might be seeking to increase its appeal.

TotalEnergies of France, signed in September a $27Billion deal that paid 40% from one of its fields. However, the deal is currently in limbo due to terms disputes and still requires approval by some Iraqi agencies. Reuters first reported this story on February.

TotalEnergies claimed it was 100% committed to the project.

According to one oil company executive, they are skeptical that Iraq will offer more appealing terms. However, analysts warn that they are unlikely to improve their situation significantly.

Ian Thom (research director, consultancy Wood Mackenzie), stated that many energy companies are considering the impact of carbon emissions and their ability to generate cash flow if commodities prices drop. They also want to improve returns. The relative appeal of Iraq has changed as the priorities of energy companies change.