It also comes shortly after the official announcement of the multi-faceted 25-year deal between China and Iraq’s chief sponsor state, Iran, although the actual deal was struck and exclusively reported in 2019, and its later developments exclusively covered at OilPrice.com.
For its part, the U.S. State Department has been looking to re-establish a more constructive association with Iraq since relations soured months after the fall of former Iraq President, Saddam Hussein, in 2003, and the later rise of ISIS. A key element of these efforts has been to decrease the longstanding role of Iran in Iraq’s political, military, and economic spheres. The more immediate focus of Washington has been to reduce Iraq’s dependence on Iran for supplies of gas and electricity that are essential to the running of Iraq’s power grid.
The idea has been to grant Iraq waivers to continue to import these products whilst concomitantly attempting to provide it with other options to source them. Most notably these options have included projects that will enable Iraq both to increase its output of non-associated gas from its own fields and to reduce the flaring of its associated gas to oil fields. From the U.S. perspective, which has made a massive investment in terms of ‘blood and treasure’ in Iraq since the invasion of 2003, such projects should be done ideally by Washington’s allies or by U.S. companies.
The Iraq deal with Total is exactly the sort of deal that the U.S. wants to see in Iraq. Total’s withdrawal from the high-profile South Pars Phase 11 gas development in Iran, despite having already spent over US$1 billion on it, highlighted France’s willingness to comply with Washington’s wishes after then-President Donald Trump pulled the U.S. unilaterally out of the ‘nuclear deal’ with Iran in May 2018. “On the eve of the signing of the next wave of financing for SP11, the U.S. Treasury Department telephoned senior bankers at the bank that was organising the money and told them that if the financing went ahead then the U.S. would instigate a full historic investigation of all of the bank’s dealings since 1979 to every country that had been blacklisted by the U.S., and it told the French government the same thing,” a senior source who works closely with Iran’s Petroleum Ministry told OilPrice.com at the time. “The U.S. Treasury also said that all French companies would not win any major contracts with U.S. companies whilst Total stayed in Iran, but if Total withdrew then the U.S. would make similar projects available to it to compensate,” he added. Given this, some may conclude that the Total deal in Iraq is one such compensatory deal.
Possibly the very last country that the U.S. wanted to see further increasing its footprint in Iraq is China. Not only is China set to overtake the U.S. as the world’s largest economy by nominal GDP by 2030 at the latest (it is already the world’s largest economy by purchasing power parity, the largest manufacturing economy, and the largest trading nation) but also China’s ‘One Belt, One Road’ program is insidiously cutting across many of the U.S.’s own spheres of influence. “[Since Xi Jinping took power in 2012/13] The leadership of China has stressed the virtues of ‘self-reliance’ and has sought to develop relationships with global partners to make up for the ending of the ‘constructive engagement’ with the U.S. and its allies of the past four decades,” Jonathan Fenby, chairman of the China research team at TS Lombard, in London, exclusively told OilPrice.com. “This political-economic nexus is set to bring growing divergence from the U.S. as part of the wider agenda of the ‘national strengthening’ being pursued by Xi Jinping, and Beijing is shifting from being an economic adversary to the U.S. to a geopolitical alternative and this could result in a step change in the nature of the confrontation between the two countries.”
This political-economic nexus in China finds external reflection in Russia, with the two countries operating in a closely co-ordinated manner across key strategic areas, including their activities in the Middle East. In essence, in any country that requires direct military intervention to extend the Sino-Russia axis (that may prompt direct confrontation with the U.S., notably Syria) it is Russia that takes the lead, whilst for any other countries, in which only money is required (many, ranging from Sri Lanka in the U.S’s Asia-Pacific sphere of influence to Iraq itself), it is China that takes the lead. This said, given the importance of Mansuriya to Russia, it is to be expected that a number of Russian companies will also be present on the Mansuriya development working alongside Sinopec, principally on the technical and equipment side.
Extremely close to the Iranian border, and just north of Baghdad, the Mansuriya gas field has an estimated 4.5-4.6 trillion cubic feet (Tcf) of gas in place, with plans to increase production to at least 320 million standard cubic feet (Mmscf) per day. This is a valuable deposit in and of itself once gas prices have fully recovered, with a previous contract remuneration of around US$7 per barrel of oil equivalent, but its significance for Russia is much greater than money and comes in two parts. The first part was that Iraq had previously always sought to offer three particular gas fields together as one development package – Mansuriya, Akkas, and Siba. These three sites form a skewed triangle across southern Iraq, stretching from Mansuriya near the eastern border with Iran, down to Siba in the south (extremely close to the key Iraqi Basra export hub), and then all the way west across to Akkas (extremely close to the border with Syria).
The second part was highlighted with the signing in September 2019 of a preliminary contract between Russia’s Stroytransgaz and Iraq’s Oil Ministry to develop the hitherto virtually unknown Block 17 in Iraq’s lawless wasteland Anbar province, a place so violent and unpredictable that it was even avoided where possible by Islamic State. The key reason why Russia took over the Block 17 site, according to sources close to the deal spoken to by OilPrice.com at the time, is that the Block is right in the middle of what the U.S. military used to call ‘the spine’ of Islamic State where the Euphrates flows westwards into Syria and eastwards into the Persian Gulf, extremely close to the border with Iran. “Along the spine running from east to west are the historical ultra-nationalist and ultra-anti-West cities of Falluja, Ramadi, Hit and Haditha, and then we’re into Syria, and a short hop to the key strategic ports of Banias and Tartus that are extremely important to the Russians,” said one of the sources.
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