MCLC: China reaps benefits from Iraq oil boom

[Denton, Kirk]

MCLC LIST
From: Sean Macdonald <smacdon2005 at gmail.com>
Subject: China reaps benefits from Iraq oil boom
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O the irony.

Sean

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Source: NYT (6/2/13):
http://www.nytimes.com/2013/06/03/world/middleeast/china-reaps-biggest-bene
fits-of-iraq-oil-boom.html

China Is Reaping Biggest Benefits of Iraq Oil Boom
By TIM ARANGO and CLIFFORD KRAUSS

BAGHDAD — Since the American-led invasion of 2003, Iraq has become one of
the world’s top oil producers, and China is now its biggest customer.
China already buys nearly half the oil that Iraq produces, nearly 1.5
million barrels a day, and is angling for an even bigger share, bidding
for a stake now owned by Exxon Mobil in one of Iraq’s largest oil fields.

“The Chinese are the biggest beneficiary of this post-Saddam oil boom in
Iraq,” said Denise Natali, a Middle East expert at the National Defense
University in Washington. “They need energy, and they want to get into the
market.”

Before the invasion, Iraq’s oil industry was sputtering, largely walled
off from world markets by international sanctions against the government
of Saddam Hussein, so his overthrow always carried the promise of renewed
access to the country’s immense reserves. Chinese state-owned companies
seized the opportunity, pouring more than $2 billion a year and hundreds
of workers into Iraq, and just as important, showing a willingness to play
by the new Iraqi government’s rules and to accept lower profits to win
contracts.

“We lost out,” said Michael Makovsky, a former Defense Department official
in the Bush administration who worked on Iraq oil policy. “The Chinese had
nothing to do with the war, but from an economic standpoint they are
benefiting from it, and our Fifth Fleet and air forces are helping to
assure their supply.”

The depth of China’s commitment here is evident in details large and small.

In the desert near the Iranian border, China recently built its own
airport to ferry workers to Iraq’s southern oil fields, and there are
plans to begin direct flights from Beijing and Shanghai to Baghdad soon.
In fancy hotels in the port city of Basra, Chinese executives impress
their hosts not just by speaking Arabic, but Iraqi-accented Arabic.

Notably, what the Chinese are not doing is complaining. Unlike the
executives of Western oil giants like Exxon Mobil, the Chinese happily
accept the strict terms of Iraq’s oil contracts, which yield only minimal
profits. China is more interested in energy to fuel its economy than
profits to enrich its oil giants.

Chinese companies do not have to answer to shareholders, pay dividends or
even generate profits. They are tools of Beijing’s foreign policy of
securing a supply of energy for its increasingly prosperous and energy
hungry population. “We don’t have any problems with them,” said Abdul
Mahdi al-Meedi, an Iraqi Oil Ministry official who handles contracts with
foreign oil companies. “They are very cooperative. There’s a big
difference, the Chinese companies are state companies, while Exxon or BP
or Shell are different.”

China is now making aggressive moves to expand its role, as Iraq is
increasingly at odds with oil companies that have cut separate deals with
Iraq’s semiautonomous Kurdish region. The Kurds offer more generous terms
than the central government, but Iraq and the United States consider such
deals illegal.

Late last year, the China National Petroleum Corporation bid for a 60
percent stake in the lucrative West Qurna I oil field, a stake that Exxon
Mobil may be forced to divest because of its oil interests in Iraqi
Kurdistan. Exxon Mobil, however, has so far resisted pressure to sell, and
in March the Chinese company said it would be interested in forming a
partnership with the American company for the oil field.

If the United States invasion and occupation of Iraq ended up benefiting
China, American energy experts say the unforeseen turn of events is not
necessarily bad for United States interests. The increased Iraqi
production, much of it pumped by Chinese workers, has also shielded the
world economy from a spike in oil prices resulting from Western sanctions
on Iranian oil exports. And with the boom in American domestic oil
production in new shale fields surpassing all expectations over the last
four years, dependence on Middle Eastern oil has declined, making access
to the Iraqi fields less vital for the United States.

At the same time, China’s interest in Iraq could also help stabilize the
country as it faces a growing sectarian conflict.

“Our interest is the oil gets produced and Iraq makes money, so this is a
big plus,” said David Goldwyn, who was the State Department coordinator
for international energy affairs in the first Obama administration.
“Geopolitically it develops close links between China and Iraq, although
China did not get into it for the politics. Now that they are there, they
have a great stake in assuring the continuity of the regime that
facilitates their investment.”

For China, Iraq is one of several countries it increasingly relies on to
keep its growing economy running. China recently became the world’s
biggest oil importer, and with its consumption growing, it is investing
heavily in oil and gas fields around the world — $12 billion worth in
2011, according to the United States Energy Department. Over 50 percent of
its oil imports come from the Middle East, even as imports from Iran have
been reduced in recent years. “It’s pretty simple,” said Kevin Jianjun Tu,
an expert on Chinese energy policies at the Carnegie Endowment for
International Peace. “China needs more energy and needs to diversify its
sources.”

The Iraqi government needs the investment, and oil remains at the heart of
its political and economic future. Currently OPEC’s second largest oil
producer after Saudi Arabia, the Iraqi government depends on oil revenues
to finance its military and social programs. Iraq estimates that its oil
fields, pipelines and refineries need $30 billion in annual investments to
reach production targets that will make it one of the world’s premier
energy powers for decades to come.

The revenue that investment would produce could either help pave over
tensions between Kurds, Shiites and Sunnis, or worsen those tensions as
competing camps fight over the spoils.

But the kind of investment that is necessary has required contracting the
services of foreign oil companies that are not always enthusiastic about
Iraq’s nationalistic, tightfisted terms or the unstable security situation
that can put employees in danger. Some like Statoil of Norway have left or
curtailed their operations.

But the Chinese, frequently as partners with other European companies like
BP and Turkish Petroleum, have filled the vacuum. And they have been happy
to focus on oil without interfering in other local issues. “The Chinese
are very simple people,” said an Iraqi Oil Ministry official who spoke on
the condition of anonymity because he did not have permission to speak to
the news media. “They are practical people. They don’t have anything to do
with politics or religion. They just work and eat and sleep.”

International energy experts said the Chinese had a competitive advantage
over Western oil companies working in Iraq. They noted that the Chinese,
unlike many Western oil companies, are willing to accept service contracts
at a very low per barrel oil fee without the promise of rights to future
reserves. While private oil companies need to list oil reserves on their
books to satisfy investors demanding growth, the Chinese do not have to
answer to shareholders.

The Chinese companies and their workers also win high marks for their
technical expertise, as long as they are not working in complicated oil
fields, like those in deep waters. “They offer a lot of capital and a
willingness to get in quickly and with a high appetite for risk,” said
Badhr Jafar, president of Crescent Petroleum, an independent oil and gas
company based in the United Arab Emirates and a big gas producer in Iraq.
He said the Chinese were vital to Iraq’s efforts to expand oil production,
adding, “They don’t have to go through hoops to get people on the ground
and working.”

Tim Arango reported from Baghdad, and Clifford Krauss reported from
Houston.