China gains ground in Iraq with ‘oil for construction’ deals

CHINA has gained a major foothold in oil-rich Iraq, shaking up Western domination in fields from energy to construction, even as some warn that infrastructure projects could leave Baghdad in debt.

After decades of conflict, Iraq is “badly in need of foreign investment, and specifically investment in energy sector infrastructure”, said John Calabrese of the Middle East Institute in Washington.

China, with its soaring energy needs is expanding its presence in Iraq under a 2019 “oil for construction” deal. Beijing has become one of the largest importers of Iraqi crude, and in 2021 accounted for 44% of Iraq’s oil exports, prime ministerial adviser Muzhar Saleh said.

And state firm PetroChina has partnered with France’s TotalEnergies and Malaysia’s Petronas to exploit the Halfaya oilfield in southern Iraq.

“China is just getting started,” ambassador Cui Wei said.

But Beijing is interested in more than just Iraq’s trade potential, Calabrese said. Beyond “obvious commercial incentives” are China’s ambitions to “deeply entrench itself in a country and a region that the West, and especially the US, has dominated,” he said.

Iraq is among the many partners in China’s vast “Belt and Road” infrastructure initiative, which Western leaders say risks saddling poorer countries with debt. Baghdad is an “important co-operation partner” in the project, a Chinese foreign ministry spokesperson said, adding that Beijing had “actively participated in the reconstruction of Iraq’s economy”.

Between 2013 and this year, Iraq was “the third most important” Belt and Road Initiative partner “for energy engagement”, stated a paper by Christoph Nedopil of the Green Finance and Development Centre at Fudan University, Shanghai.

Under the 2019 “oil for construction” deal, building projects in Iraq are funded by the sale of 100 000 barrels per day of Iraqi oil to China.

One aspect of the agreement was a deal to build Iraqi schools. Two Chinese partners were tapped to carry out the construction – PowerChina and Sinotech – with 8 000 education facilities to eventually be built. Work has also begun on an airport in the southern city of Nasiriyah, built by China State Construction Engineering Corp.

Under such projects, Chinese firms must work with local contractors that “provide manpower and raw materials”, said Haider Majid, an Iraqi government spokesman.

But Yesar al-Maleki, an analyst for the Middle East Economic Survey, said there was “a big question mark” over how Iraqi contractors are selected. “Many of these companies are rumoured to be politically connected,” he said, warning that Iraq could end up in a “death trap” of debt.

As China’s influence in Iraq grows, more Iraqis have been taking their business to China and Baghdad has begun offering classes in Mandarin.