China Gains Ground in Iraq’s Vital Oil Project Amid Western Retreat

The landscape of Iraq’s oil development is shifting as China seeks to assert its influence over the Common Seawater Supply Project (CSSP), a crucial initiative for boosting the country’s oil output. Control of this project is essential for accessing Iraq’s vast oil and gas resources, making it a focal point in the ongoing competition between Western and Eastern firms. With the recent announcement that China Petroleum Engineering & Construction Corporation (CPECC) secured a contract valued at US$2.524 billion from Iraq’s Basra Oil Company, analysts are questioning whether this marks a strategic repositioning of Chinese interests in the region.

The CSSP is designed to enhance Iraq’s oil production by transporting treated seawater to various oilfields, thereby maintaining reservoir pressure. Initially led by ExxonMobil, the project saw a transition after the U.S. firm withdrew, leading to a temporary leadership role for the China National Petroleum Corporation (CNPC). However, CNPC struggled to make significant progress, prompting Iraq to award the primary development role to France’s TotalEnergies as part of a broader US$27 billion investment strategy aimed at increasing oil and gas output.

CPECC’s recent contract involves the engineering, procurement, and construction of pipelines essential for the Basra Province Seawater Transmission Pipeline Project (BSPP). Notably, CPECC is a subsidiary of CNPC, which raises questions about its intentions to reclaim a more prominent role in the CSSP. The new contract signifies a potential resurgence of Chinese influence, particularly as Iraq grapples with the complexities of its oil sector.

Iraq’s oil reserves are among the largest globally, with the Energy Information Administration estimating approximately 145 billion barrels of proved crude oil reserves. Furthermore, the International Energy Agency projects that recoverable resources could exceed 246 billion barrels when including the semi-autonomous Kurdistan region. The country’s strategic location, which connects East and West, further enhances its value, particularly within the framework of China’s ambitious Belt and Road Initiative.

The CSSP is pivotal for Iraq to realize its potential as a leading crude oil producer. Historical data from 2012 indicated that Iraq could potentially increase its oil output from just over 3 million barrels per day (bpd) to 13 million bpd by employing advanced water injection techniques. This ambitious projection relies on substantial investments in infrastructure and technology, areas where Western firms like ExxonMobil have previously excelled, but which Chinese firms are increasingly willing to pursue.

Despite the hurdles posed by corruption and operational challenges within Iraq’s oil industry, Chinese companies have carved out a substantial presence. Currently, around 34% of Iraq’s proven reserves and two-thirds of its production are managed by Chinese entities, which have direct stakes in approximately 24 billion barrels of reserves. This strategic positioning allows China to engage flexibly with Iraq’s contracting culture, which often includes informal practices that Western firms may hesitate to navigate.

The dynamics of this competition became evident when TotalEnergies faced similar pressure from Iraqi authorities, particularly in light of attempts to revive the Iraqi National Oil Company, often criticized for its corruption. The French firm’s ability to maintain its position in the CSSP will depend on whether Iraq can mitigate some of its operational challenges and align more closely with international standards.

Looking ahead, the outcome of the ongoing rivalry between Chinese and Western firms in Iraq’s oil sector could reshape the region’s energy landscape. With the CSSP serving as a critical fulcrum, the potential for increased Chinese influence is apparent, particularly if CPECC’s recent contract translates into a broader role in Iraq’s strategic oil projects. As the competition intensifies, the implications for global oil markets and geopolitical alignments will undoubtedly be significant.