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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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Iraq and China Strengthen Ties With Major Development Initiative

  • Iraq's $17 billion Strategic Development Road (SDR) will create a transport corridor from Basra to Europe, linking with China's Belt and Road Initiative (BRI).
  • The SDR aims to provide a faster and cheaper alternative to traditional trade routes like the Suez Canal, enhancing trade efficiency between the Middle East and Europe.
  • China's growing influence in Iraq is underscored by extensive cooperation in oil, gas, and transport infrastructure, raising geopolitical stakes in the region.
Iraq China

A series of high-level meetings took place last week between senior Iraqi and Chinese officials to finalize the details of the next phase of their wide-ranging cooperation plan. The foundations for this were laid in the 2019 ‘Oil for Reconstruction and Investment’ agreementwhich was subsequently expanded into the 2021 ‘Iraq-China Framework Agreement’, as analyzed in full in my new book on the new global oil market order. These, in turn, were based on the broad and deep expansion of relations between China and Iraq’s key Middle Eastern sponsor Iran, as laid out in 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 also fully detailed in the new book. In both Iraq’s and Iran’s cases, the agreements initially focus on developing oil and gas reserves, and then build out from this to encompass road, rail, air, and shipping links, and then a rapid expansion of cooperation in security matters across the countries. Last week’s meetings between senior Iraq and Chinese figures focused on the first and second of these relationship development phases, and most crucially on plans to link Iraq’s $17 billion Strategic Development Road (SDR) program directly into China’s own ‘One Belt, One Road’ multi-generational power-grab project – now rebranded as the less-autocratic-sounding ‘Belt and Road Initiative’ (BRI).

Broadly, Iraq’s SDR will create a seamless transport corridor running from the flagship deepwater Al Faw Grand Port (due to be finished in 2025) in its key oil export hub of Basra in the Persian Gulf, all the way through several of its biggest oil and gas fields, and finally into Fishkabur on the Iraqi border with Turkey. From here it will extend via road and railway links into the rest of Europe. Even without any links to China’s BRI transport corridors, the SDR’s route from the Persian Gulf to the key business hubs of Europe (and its main oil hubs) would offer a higher speed and lower cost for goods to be moved than transport through the Suez Canal, for example. For China, its integration into its own BRI infrastructure would represent an alternative final part of the transport jigsaw that would see a direct land route from Xi’an into Europe. It could also function as the alternative final route in the maritime transport corridor running from Quanzhou to Colombo in Sri Lanka and then up to Basra rather than continuing past Yemen and through the Red Sea and Suez Canal into the Mediterranean. An added geopolitical advantage for China is that Iraq’s new SDR should also be quicker and less costly than the route favored by its key global rival the U.S. and beginning in its key regional rival India – that is, the India-Middle East-Europe Economic Corridor (IMEC) corridor. 

The building of this dense network of transport routes provided by the integration of the SDR and BRI should also allow China to further build up its own ‘security’ presence across Iraq, as it has already done on the multiple oil and gas fields over which it exercises control to a greater or lesser degree. It is not commonly known, but oil and gas companies are perfectly entitled in international law to station as many of their own personnel on the ground in any oil and gas field in which they have a significant interest in order to keep it safe. These personnel can be anybody chosen by the oil and gas firm involved, and as all oil and gas firms in China (and all other indigenous firms) have a primary duty to the Chinese state, this includes anyone the Chinese government thinks should be there. Indeed, several major Chinese oil and gas firms are subsidiaries of China’s military complex, including some that won major license awards in Iraq’s very recent ‘fifth-plus’ and sixth licensing rounds that are subsidiaries of one of its leading defense contractors, Norinco. One of them – Zhenhua Oil – was also the same company that on 2 January 2021 made a multi-billion-dollar deal with Iraq’s Federal Government in Baghdad to prepay for four million barrels every month for five years to be delivered to China by Iraq’s State Organization for Marketing of Oil (SOMO). As also analyzed in depth in my new book on the new global oil market order, it was exactly the same strategy to take over Iraq’s oil industry in the south that Russia had successfully used to take over the industry in the semi-autonomous northern region of Iraqi Kurdistan in 2017. Although China’s 2021 deal was canceled due to pressure from the U.S., it has made little net difference to the country’s increasing dominance over Iraq’s key oil and gas assets. According to industry figures, over a third of Iraq’s proven oil and gas reserves and over two-thirds of its current production are managed by Chinese companies.

A link between Iraq’s SDR and China’s BRI also opens the way for synergies with other plans being developed by China and Iraq’s key allies, Iran and Russia. As analyzed in depth by OilPrice.com recently, 11 May saw Iran announce its intention to establish an ‘energy corridor’ from Russia to the Persian Gulf. When the SDR corridor from the Persian Gulf to Europe opens - it is expected to be completed in 2028 – this would effectively mean not just a direct China-Middle East-Europe transport corridor but a Russia-Middle East-Europe one as well. This would have two enormous benefits for Russia, Iran, and China, although not necessarily for Iraq. Firstly, Russia would be able to bypass many current international restrictions using Iran’s long-established mechanisms to avoid sanctions on gas and oil flows into Turkey and then Europe, and via Iraq into the rest of the world, as also analyzed in full in my new book. Secondly, Iran would be able to expedite the progress of its long-sought ‘land bridge’ from Tehran to the Mediterranean Sea by which it could exponentially increase the scale and scope of weapons delivery into southern Lebanon and the Golan Heights area of Syria to be used against Israel and the U.S. in Middle Eastern conflicts. For China, such a broader conflict in tandem with Russia’s current (or next) conflict in eastern Europe, would make it more difficult for the U.S. and its NATO allies to react to a simultaneous invasion of Taiwan. Unsurprisingly, then, last week also saw Iran’s acting Foreign Minister, Ali Bagheri, offer to fully support the development of Iraq’s SDR in a meeting with Iraqi Prime Minister Mohammed Shia al-Sudani. 

By Simon Watkins for Oilprice.com

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