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Simon Watkins

Simon Watkins

Simon Watkins is a former senior FX trader and salesman, financial journalist, and best-selling author. He was Head of Forex Institutional Sales and Trading for…

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Russia Takes Control of Iraq’s Biggest Oil Discovery for 20 Years

  • The Eridu field is the biggest oil find in Iraq in the last 20 years.
  • March saw Iraq’s state-owned Dhi Qar Oil Company (DQOC) formally approve the development of Block 10’s reserves, including for the whole Eridu field.
  • Inpex' decision to sell its 40 percent stake in the Block 10 region that contains the huge Eridu discovery leaves the way clear for Lukoil to take total control of the entire oil-rich area.
Iraqi oil

Preliminary estimates suggested that Iraq’s Eridu oil field holds between 7-10 billion barrels of reserves. Senior Russian oil industry sources spoken to exclusively by OilPrice.com last week said the true figure may well be 50 percent more than the higher figure of that band. In either event, the Eridu field - part of Iraq’s Block 10 exploration and development region – is the biggest oil find in Iraq in the last 20 years, and Russia wants to control all of it, alongside its chief geopolitical ally, China. This is in line with Moscow and Beijing’s objective of keeping the West out of energy deals in Iraq to keep Baghdad closer to the new Iran-Saudi axis and to “end [the] Western hegemony in the Middle East [that] will become the decisive chapter in the West’s final demise,” as exclusively related to OilPrice.com. The approval last week by Iraq’s Oil Ministry for Inpex – the major oil company of key U.S. ally Japan – to sell its 40 percent stake in the Block 10 region that contains the huge Eridu discovery leaves the way clear for Lukoil to take total control of the entire oil-rich area.

Lukoil had held a 60 percent stake in the entirety of Block 10, with the remainder held by the Japanese firm. However, from March it has been looking for ways to push Inpex out of the Block, and with it the last remnants of Western influence in the area. March saw Iraq’s state-owned Dhi Qar Oil Company (DQOC) formally approve the development of Block 10’s reserves, including for the whole Eridu field. Block 10 lies in the southeast of Iraq, approximately 120 km west of the key oil export route from Basra, and just south of the huge oil fields in and around Nassirya. The contract for Block 10 awarded to Lukoil and Inpex back in 2012 in Iraq’s fourth licensing round gives a relatively high remuneration per barrel rate of US$5.99, although at that point the vast Eridu field had not been discovered. In 2021, after some preliminary testing, Iraq’s Oil Ministry said it expected peak production of at minimum 250,000 barrels per day (bpd) from Eridu by, at that point, 2027. The senior Russian oil industry sources exclusively spoken to by OilPrice.com last week, believe peak production could run at least 100,000 bpd higher than the previous figure, contingent on whether the new reserves estimates are correct, although given delays in development since 2021, the date at which that will be achieved is now toward the end of 2029. Related: Why Gasoline Prices Fall Almost Every Year Between August and November

Back in 2021 – at least before the U.S. formally withdrew from Iraq by ending its ‘combat mission’ there at the end of December – it was clear that Washington knew what Russia and China were up to long term in the country, and how the U.S. was being manipulated by Iraq. In a moment of insight, the then-U.S. Deputy Assistant Secretary of Defense, Dana Stroul, said: “It’s […] clear that certain countries and partners would want to hedge and test what more they might be able to get from the United States by testing the waters of deeper co-operation with the Chinese or the Russians, particularly in the security and military space.” This view could equally have been aimed, not just at Iraq, but also at most other countries in the Middle East at that time - most notably Saudi Arabia, and the UAE. That said, this profound insight had no effect on Washington at that point, and posed no impediment at all to either Russia or China’s continued drive to entirely push the U.S. out of the Middle East, as analysed in depth in in my new book on the new global oil market order.

For Iraq, the endgame has been apparent from Russia’s effective takeover of the oil and gas industry of the country’s troublesome semi-autonomous region of Kurdistan in the north. This occurred in the chaos that followed the brutal put-down of the region after 93 percent of its inhabitants voted for full independence from Iraq in September 2017. Russian control over Iraqi Kurdistan was secured via the state’s corporate proxy, Rosneft, through three means, as also analysed in full in my new book. Subsequent to this, Russia has manipulated the region into such a toxic standoff with the central Iraq government in Baghdad that the final stage of the plan to effectively incorporate the Iraqi Kurdistan region into the rest of Iraq, is now proceeding at full throttle. Given this, Russia and China are now moving to secure their dominance over the rest of Iraq, with the removal of Inpex from the vast Eridu field being only the latest example of their broader strategy at work.

Multiple field exploration and development deals, plus countless lower-profile ‘contract-only’ agreements, with Russian and Chinese firms allow the two countries plenty of scope to leverage these out into a harder geopolitical presence across the country, including into the very fabric of its key infrastructure. At a recent Iraq Cabinet meeting, it was agreed that the country should now give its full support to rolling out all aspects of the wide-ranging ‘Iraq-China Framework Agreement’ signed in December 2021, but agreed in principle more than a year before that. This agreement is very similar in scope and scale to the all-encompassing ‘Iran-China 25-Year Comprehensive Cooperation Agreement’, as first revealed anywhere in the world in my 3 September 2019 article on the subject and fully examined in my new book.

A key part of both deals is that China has first refusal on all oil, gas, and petrochemicals projects that come up in Iraq for the duration of the deal, and that it is given at least a 30 percent discount on all oil, gas, and petrochemicals it buys. Another key part of the Iraq-China Framework Agreement is that Beijing is allowed to build factories across the country, with a corollary build-out of supportive infrastructure. This includes - importantly for its ‘Belt and Road Initiative’ – railway links, all overseen by its own management staff from Chinese companies on the ground in Iraq. The railway infrastructure in Iraq will be completed out after the network in Iran has been finished, and this began in earnest in late 2020 with the contract to electrify the main 900-kilometre railway connecting Tehran to the north-eastern city of Mashhad. As an adjunct to this, plans were put in place to establish a Tehran-Qom-Isfahan high-speed train line and to extend this upgraded network up to the north-west through Tabriz. Tabriz - home to several key sites relating to oil, gas, and petrochemicals, and the starting point for the Tabriz-Ankara gas pipeline – is to be a pivot point of the 2,300-kilometre New Silk Road that links Urumqi (the capital of China’s western Xinjiang Province) to Tehran, and will connect Kazakhstan, Kyrgyzstan, Uzbekistan and Turkmenistan along the way, before it then runs into Europe, via Turkey. 

These plans, in turn, link into corollary plans by Russia and China to turn the entire southeast region of Iraq - that culminates with the major oil export hub of Basra - into a region criss-crossed by Russian- and Chinese-controlled oil and gas fields and transportation hubs, as also analysed in full in my new book. One such cornerstone deal was Baghdad’s approval of nearly IQD1 trillion (US$700 million) for infrastructure projects in the city of Al-Zubair just to the south of Basra. The city’s Governor at the time the deal was struck, Abbas Al-Saadi, said China’s heavy involvement in the projects was part of the broad-based ‘oil-for-reconstruction and investment’ agreement – part of the general ‘oil-for-projects’ idea signed by Baghdad and Beijing in September 2019.

The Al-Zubair announcement came shortly after the awarding by Baghdad of another major contract to another Chinese company to build a civilian airport to replace the military base in the capital of the southern oil rich Dhi Qar governorate. The Dhi Qar region includes two of Iraq’s potentially biggest oil fields – Gharraf and Nassiriya – and China has said it intends to complete the airport by 2024. This region is also to the immediate north of the huge Eridu oil field and to the northwest of Basra. The airport project will include the construction of multiple cargo buildings and roads linking the airport to the city’s town centre and separately to other key oil areas in southern Iraq. This, in turn, followed yet another deal that will involve Chinese companies building out Al-Sadr City, located near Baghdad, at a cost of between US$7-8 billion, also within the framework of the 2019 ‘oil-for-reconstruction and investment’ agreement.

By Simon Watkins for Oilprice.com

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Leave a comment
  • Mamdouh Salameh on November 29 2023 said:
    With the China-Russia-Iran axis on the ascendency in the Middle East and with the United States’ influence in the region in retreat, it is inevitable that both China and Russia will take advantage of the situation to bolster their oil and gas position in Iraq which is the last oil prize in the world.

    After all China is the largest investor in Iraq’s oil industry and the second biggest importer of Iraqi crude while Russia controls oil assets in Iraqi Kurdistan. Moreover, Russia enjoys extremely close relations with Iraq dating back to the 1950s.

    And when we add Iran’s political influence in Iraq and it’s dependence on Iran’s gas and electricity supplies, the control of Iraq’s oil industry by China and Russia is virtually complete.

    Moreover, the growing relations between Saudi Arabia and Iran and the solid relations between Russia and China on the one hand with Saudi Arabia and UAE on the other, mean that the China-Russia alliance is on the way to replace the United States in the whole Gulf region and this includes the spectacular oil wealth of the region.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert
  • Ian St. John on November 30 2023 said:
    The GWB 'regime change" bears it's bitter fruits.

    War. The best way to lose friends and become irrelevant.

Leave a comment

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