Premium Content
China Snubs Washington With Big Oil Deals In South Iraq
By Simon Watkins - Jan 21, 2021, 6:00 PM CST
There are three major troubling factors for new U.S. President Joe Biden. In the recently agreed US$2 billion five–year prepayment oil supply deal between the Federal Government of Iraq (FGI) in Baghdad and China’s Zhenhua Oil. First, is that the deal is straight out of the playbook that Russia used to gain control over Iraq’s semi-autonomous northern region of Kurdistan in 2017. Second, according to various sources close to Iraq’s Oil Ministry spoken to by
OilPrice.com last week, this deal between Russia’s Rosneft and the government of Kurdistan (the KRG) meant that Moscow was able to cause such disruption in the budget payments-for-oil deal between Kurdistan and Baghdad that the resulting financial crunch for the FGI pre-disposed Baghdad to look beneficially at the China proposal in the first place. This implies clearly that Russia and China are directly acting in concert to carve up the Middle East after it was effectively vacated by former President Donald Trump. And third, it means that China is directly testing Biden’s ability to separate trade considerations from security considerations – as Trump frequently traded the latter off for the former – to see what the new U.S. President’s reaction will be, particularly given that Zhenhua Oil is an ‘in your face’ arm of China’s defence contractor Norinco. Looking at the Russian Kurdistan deal first as a comparison point for the new China FGI deal, the Kremlin’s corporate oil proxy, Rosneft, effectively took over the ownership of Kurdistan’s oil sector in 2017 through three principal manoeuvres. First, Russia provided the KRG with US$1.5 billion in financing through a three to five year prepayment oil supply deal, exactly the same as the deal just agreed between Baghdad and China. Second, it took an 80 per cent working interest in five potentially major oil blocks in the Kurdistan region together with corollary investment and technical, technology, and equipment assistance. And third, it established 60 per cent ownership of the vital KRG oil pipeline into southern Europe’s port of Ceyhan in Turkey by dint of a commitment to invest US$1.8 billion to increase its capacity to one million barrels per day.