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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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The Oil Deal That Represents the West’s Final Chance to Regain Influence in Iraq

  • US seeks influence in Iraq via French oil giant's $27 billion deal.
  • The deal aims to reduce Iraq's reliance on Iran's energy and weaken Shia Crescent.
  • Project success hinges on overcoming Iraqi delays and China's strong presence in Iraqi oil.
Oil

Ever since the U.S. formally ended its combat mission in Iraq on 9 December 2021, it and its key allies have been looking for a way back into the country. The reasons why are the same as those that led it into Iraq in the first place in 2003 and those that have seen China and Russia hurry to fill the power vacuum left by the U.S. and allied withdrawal, as analyzed in full in my new book on the new global oil market order. In summary here, the first is that Iraq has vast and still relatively untapped oil and gas resources. Second, it occupies a geographically critical position in the very heart of the Middle East. Third, it has a geopolitically crucial role as a key element of the ‘Shia Crescent of Power’ that influences much of what happens in the region. Since 2021, the U.S. has tried various ‘carrot and stick’ approaches to re-establish a meaningful foothold in Iraq, including sanctions threats and huge investment offers from the government and through several of its major firms, but none have been proven fruitful. Instead, it appears that the U.S.’s and the West’s last chance to regain some influence in Iraq is through France’s oil and gas powerhouse, TotalEnergies, and its US$27 billion four-project megadeal. So, how is it currently looking?

One of the key projects is for the French firm to collect and refine associated gas that is currently burned off during oil drilling at the five southern Iraq oilfields of West Qurna 2, Majnoon, Tuba, Luhais, and Artawi. For the West, the key advantage of this would be to reduce Iraq’s long-running dependence on neighboring Iran for up to 40 percent of its energy supplies through gas and electricity imports. This would be a good start in driving a wedge – albeit a slim one to begin with - between the two countries that could be further exploited to undermine the regional influence of the Shia Crescent of Power. This could then be used to stymie Iran’s ongoing efforts to build a ‘land bridge’ that would run via Iraq all the way to the Mediterranean coast, which would then be used by Tehran to increase arms shipments to its militant proxies for use against Israel. It could also be expanded to bring greater financial pressure on Iran, as much of its economic wealth comes from oil exports disguised as Iraqi oil and sent via Iraqi export channels, as also analyzed in full in my new book on the new global oil market order. And for Iraq, the big advantage would be that over time any surplus gas collected that is not used for its domestic power needs could be monetized through exports, and through use in lucrative petrochemical projects such as the long-stalled Nebras Project.

There are a couple of problems for TotalEnergies in this regard, though. The first is that Iraq has been talking about doing this for so long that its words on the subject have lost all meaning. In 2017, for example, Iraq committed to the United Nations and World Bank's ‘Zero Routine Flaring’ initiative, aimed at ending by 2030 the routine flaring of gas produced during the drilling of oil. At the time, Iraq flared the second largest quantity of gas in the world (after Russia) – some 17.37 billion cubic meters (bcm). Last year, it was still in second place behind Russia and was flaring almost exactly the same amount of gas. Since around 2014, it has touted the same two sets of projects – for the Gharraf and Nassiriya oil fields - aimed at reducing gas flaring with only the names of the foreign participants being changed on each occasion, and again there has been no meaningful progress on either. And only very recently, Iraq signed the longest-ever deal – five years - to continue importing gas and electricity from Iran. For dedicated oil industry watchers, it has long seemed as though these two project promises are just wheeled out every year when whoever is prime minister of Iraq at the time goes to Washington to ask for further billions in emergency budget bailout funds, followed by nothing being done when the money has been safely banked somewhere. Consequently, the very recent comment from Iraq’s Oil Minister Hayan Abdel-Ghani that TotalEnergies will help Iraq eliminate gas flaring within a year appears highly optimistic, to say the least. 

All the more so, as the second problem is that the French firm may well find any attempts to reduce gas flaring on several of these fields are scuppered by the Chinese firms that are already resident on them, in the shape of multiple exploration and development deals, plus a myriad of further smaller contracts related to everything from engineering and procurement to site maintenance, storage handling, and security. Of the five fields that TotalEnergies is set to focus on to reduce gas flaring, China’s Anton Oilfield Services renewed its Integrated Facilities Management Services Contract with Basra Oil Company (BOC) in 2021 to develop Majnoon, its Geo-Jade Petroleum signed the contract in May to develop Tuba, and its close friends from Russian oil giant Lukoil is the lead operator of West Qurna 2. This – and the slew of recent awards given to Chinese companies in the ‘fifth-plus’ and sixth licensing rounds - means that over a third of all Iraq’s proven oil and gas reserves and over two-thirds of its current production are managed by Chinese companies, according to industry figures.

It is possible that the second major project of TotalEnergies’ four-project megadeal has a greater chance of success, simply by dint of the fact that Iraq desperately needs it to work and no Chinese or Russian firm is capable of doing it. This is the Common Seawater Supply Project (CSSP) that is critical in enabling Iraq to dramatically increase its crude oil production up to 6 million barrels per day (bpd), or 9 million bod, or even 13 million bpd, as analyzed in full in my new book on the new global oil market order. The project was delayed for over a decade, as the U.S.’s ExxonMobil and the China National Petroleum Corporation (CNPC) battled it out for control until finally the U.S. firm withdrew and CNPC made no substantive progress, allowing TotalEnergies to take the contract. The project involves taking and treating seawater from the Persian Gulf and then transporting it via pipelines to oil production facilities to maintain pressure in oil reservoirs to optimize the longevity and output of fields. The initial plan for the CSSP is that it initially supplies around 6 million bpd of water to at least five southern Basra fields and one in Maysan Province and is then expanded for use in other fields. To reach and then sustain the higher levels of Iraq’s potential oil production profiles, it will have total water injection needs equating to around 2 percent of the combined average flows of the Tigris and Euphrates rivers - or 6 percent of their combined flow during the low season - according to the International Energy Agency. These amounts might not look too onerous, but they will have to be drawn out of the common supply that also needs to keep satisfying the needs of other big users, most notably agriculture.

So how is the CSSP going? Like other elements of the French firm’s four-pronged deal, progress on this project was held up by Iraqi efforts to increase its share in the deal, before backing down again after TotalEnergies made it very clear that this was never going to happen. As it now stands, then, little in the way of progress has occurred. Recent comments from a senior official at the state-run Basra Oil Company quoted by a local news source underlined the apparent 50-50 chance of success being made when he said, “If we actually start work on the ground, with an accelerated plan during 2024, I expect that the fields will begin receiving water from the seawater project in 2027.” It is indeed a big ‘if’. A comparison of progress was given by the IEA back in 2012 when the CSSP project had already been under discussion for some time. Saudi Aramco’s Qurayyah Seawater Plant Expansion – which involved the 2 million bpd expansion of an existing facility - took nearly four years from the awarding of the front-end engineering, procurement, and design contract (in May 2005) to the time that water first began to flow in early 2009. From when the CSSP was first officially proposed by Iraq’s state-owned South Oil Company in 2011, 13 years have passed so far, and nothing meaningful has been achieved yet.

By Simon Watkins for Oilprice.com

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Leave a comment
  • Mamdouh Salameh on May 29 2024 said:
    Iraq, Iran and the whole Arab world want the US military presence ejected from Iraq and the Middle East as soon as possible more so since 7 October 2023 with the United States' condoning Israeli genocide of Palestinians in Gaza, destruction of their homes and hospitals and starving them in a display of brutality never seen before.

    Moreover, the United States has already lost all influence in Iraq and the Middle East at large so hoping to restore some via French oil giant TotalEnergies is a pipe dream and hallucination.

    Even if the French oil giant succeeds in its project to collect and refine associated gas that is currently burned off from four Iraqi oilfields, it will eventually be asked to leave Itaq. So there goes America's hopes of retaining some influence in Iraq.

    China's influence in Iraq and the whole Middle East along with Russia's is going from strength to strength. They are virtually the masters of the Middle East.

    The United States and its Western allies should realize the seismic transformations that are happening in the world and bringing a new World Order and a new financial system away from the dollar.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert

Leave a comment




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