China is the only winner in this huge Iraqi oil field

Iraqi Petroleum Minister Ihsan Abdul Jabbar’s statement last week that the newly resurrected Iraqi National Oil Company (INOC) has received government approval to acquire ExxonMobil’s 32.7% stake in the oil field supergiant West Qurna 1 for up to $ 350 million is likely to leave China elated, the United States angered and the Iraqi oil industry still unable to meet one of its main oil production targets. The last iteration of INOC – established in 1966, before its effective closure in 1987, with its remnants incorporated into the Ministry of Petroleum (MoO) – was based on a mandate that included elements that appeared to be aimed at allowing malpractice to occur. ‘one type. and another. In particular, article 12 of the law on the establishment of the INOC contained, as pointed out by the former senior economist of the Iraqi interior ministry, then director of the Development Consultancy & Research based in Oslo, Ahmed Mousa Jiyad: “The most ridiculous, disintegrating, destructive and unconstitutional aspects of this law […providing] legal coverage of formalized corruption and kleptocracy by allocating the three funds [‘Citizens Fund’, ‘Generations Fund’, ‘Reconstruction Fund’] at least 10 percent of revenues from oil exports at the discretion of the INOC Board of Directors. The power of the INOC board, however, could be extended further, he added at the time, because in the 2018 version of the law, the revenues generated by exporting and selling of oil and gas “will be considered as financial income for the INOC. ‘. “This is a blatant violation of the Constitution, which states that oil and gas belong to the Iraqi people and not a financial return to a state-owned enterprise,” Jiyad said. The full scope of powers of this new version of INOC has not yet been fully defined, which means that no constraints are in place.

Even without a centralized institution such as INOC to concentrate and control all key elements belonging to Iraq’s far most lucrative business sector (oil still accounts for around 90 percent of total government revenues), the independent company of risk analysis, Transparency International in its “Corruption Perception Index”, in which Iraq is always ranked last or almost, constantly notes that the country demonstrates: international rankings of corruption … and political interference in anti-corruption bodies and the politicization of corruption issues, weak civil society, insecurity, lack of resources and incomplete legal arrangements severely limit the government’s ability to effectively curb the escalation of corruption . “

According to a statement made in 2015 by Iraq’s own Petroleum Minister – and later Iraqi Prime Minister – Adil Abdul Mahdi, Iraq “lost US $ 14,448,146,000” (or over 14 “billion” not “millions” “) From the beginning of 2011 until the end of 2014 in cash” compensation “payments, supposedly to international oil companies and other related entities, but in reality, as fully analyzed here OilPrice.com, mainly related to the way in which the gross remuneration costs, income tax and the share of the partner state was deducted and accounted for in the indemnities paid for the decrease in oil production. This “accounting factor used in the calculations” related only to “expenditures of various kinds” which were never disclosed or clarified in any way by the MoO, but which is the key to merging public funds with public funds. private funds. It saw its true genesis in 2009 when, in many cases, CIOs were asked to make large upfront payments as part of their offer, which would supposedly be repaid at a later date. Related: Libyan Oil Production Bounces Back After Pipeline Repairs

This is the main reason why so many major Western oil companies have decided to pull out in recent months, including ExxonMobil. As highlighted exclusively by OilPrice.com in 2019, ExxonMobil had been desperate to pull out of the key project vital to Iraq’s plans to dramatically increase its crude oil production – the Common Seawater Supply Project (CSSP) – for years in order to to avoid damage to reputation. damage whether to him or to the United States that his involvement may have caused. Once it was clear that Iraq was not going to tackle the risk / reward matrix by allowing American or European lawyers and accountants to be brought in to review legal agreements relating to the project or to be involved in them accounts, so ExxonMobil made it clear to the Iraqis that it did not want to continue its involvement in the CSSP and that it also lost interest in continuing its involvement in West Qurna 1. The breadth and depth of the Iraq’s endemic culture of corruption is highlighted even on the crucial issue of its own security, as local reports point out. This resulted in a situation in which hundreds of millions of dollars over the years, given to Iraq by the West specifically to maintain its fleet of F-16 fighter jets, ended up in the bank accounts of all layers of management involved in the program locally. So much money has been stolen that by mid-2020 only seven jets in the fleet – just 20% of the total – were still able to fly without serious risk of crashing.

This is precisely the chaotic environment in which China and Russia see the opportunity to project their influence, and so does the Iraqi oil sector which, with an average lifting cost per barrel of crude oil of around $ 1-2 (operating cost excluding capital expenditure) – offers the lowest development costs in the world, along with Iran and Saudi Arabia. West Qurna 1, located about 65 kilometers from southern Iraq’s main oil and export hub, Basra, holds a significant share of the 43 billion barrels of estimated recoverable reserves held across the West Qurna supergiant field. . West Qurna 1 was originally thought to hold around 9 billion barrels of these reserves, but earlier last year the Iraqi Oil Ministry said it planned to increase crude oil production capacity. of the field to over 700,000 barrels per day (bpd) over the next five years. , from the current 450,000 to 500,000 bpd, based on recoverable reserves of over 20 billion barrels. This opportunity led China, in the form of PetroChina – the listed arm of the China National Petroleum Corporation – to itself buy a 32.7% stake in the field around the same time that ExxonMobil took its stake. and to establish itself as the dominant force on the site even before ExxonMobil decides to withdraw from the oil field and the CSSP. As analyzed in depth in my new book on Global Oil Markets, the strategy employed to effectively sideline ExxonMobil is a strategy that China has used repeatedly in similar situations across the Middle East, with a key element being the The often surreptitious and gradual acquisition of a range of huge “contract only” awards to Chinese companies. The most notable of these – exclusively reported by OilPrice.com in November 2019 – was the $ 121 million engineering contract to upgrade facilities used to extract gas during crude oil production at China Petroleum Engineering & Construction. Corp. Only deals have been made by China across Iraq, including for its supergiant Majnoon oil field, with another hitherto unknown Chinese company – the Hilong Oil Service & Engineering Company. These deals with lesser-known Chinese companies, in addition to official exploration and production development agreements made by major Chinese oil companies, mean that whatever Western company was also involved at a site, it was China. who was in charge.

By Simon Watkins for Oil chauffage

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