Iraq Resists Increased Chinese Control Over Its Oilfields, Reports Reuters

Iraq’s Oil Ministry Blocks Deals Favoring Chinese Firms Amid Western Exits

By Sarah McFarlane and Aref Mohammed

LONDON/BASRA – Iraq’s oil ministry intervened last year to prevent three potential agreements that would have given Chinese companies greater control over its oilfields, a move that could lead to a departure of the international oil majors Baghdad hopes will invest in its struggling economy.

Since early 2021, plans by Russian firm Lukoil and American oil giant Exxon Mobil to divest stakes in significant oilfields to state-backed Chinese firms have been stalled due to actions from Iraq’s oil ministry. This is according to sources within Iraq’s oil sector and industry executives.

British company BP also considered selling a portion of its stake to a Chinese state-owned enterprise, but officials were able to convince the company to remain in Iraq for now, according to knowledgeable sources.

China holds the position of Iraq’s largest investor, and last year, Baghdad benefited significantly from Beijing’s Belt and Road initiative, securing $10.5 billion for infrastructure projects, including a power plant and an airport.

However, Iraq has drawn a firm line regarding further Chinese investment in its major oilfields.

Iraqi government officials and employees from state-run oil companies are concerned that allowing more Chinese consolidation could prompt a flight of Western oil firms, which they view as essential to the nation’s economic revitalization, as reported by several Iraqi oil officials and executives.

Oil Minister Ihsan Abdul Jabbar, supported by officials from state-run oil companies, discouraged Lukoil last year from selling a stake in the West Qurna 2 field to the Chinese firm Sinopec. Iraqi authorities also intervened to block Chinese companies from acquiring an interest in Exxon’s West Qurna 1 and to persuade BP not to divest from its interest in the Rumaila oilfield.

Together, the Rumaila and West Qurna fields account for approximately half of Iraq’s crude oil production, which is underpinned by some of the largest oil reserves in the world.

The oil ministry has not commented on the specific deals or its minister’s interventions.

Iraqi officials worry that allowing China to dominate could deter other international investments, particularly given China’s strengthening ties with Iran, which exerts considerable political and military influence in Iraq. This has made the oil ministry cautious about granting further control over pivotal resources.

"We don’t want the Iraqi energy sector to be seen as predominantly China-led, and this sentiment is supported by both the government and the oil ministry," said another official.

The moves against further Chinese investment follow a period in which Chinese companies secured the majority of energy contracts over the past four years. Iraqi oil officials noted that Chinese firms are willing to operate under lower profit margins compared to their competitors.

While resisting more Chinese investment may prove risky, Iraq’s government believes that the nation needs vast funds to rebuild its economy following the defeat of the Islamic State insurgency in 2017.

Oil revenue has historically been central to Iraq’s economy, contributing 99% of exports, 85% of the national budget, and 42% of gross domestic product, according to the World Bank.

With oil giants shifting focus toward energy transition and more lucrative opportunities elsewhere, they are demanding improved terms for development.

China remains a critical customer for Iraqi crude oil, and Chinese state companies have cultivated a strong presence in the country’s oil sector. However, when Lukoil informed the Iraqi government about the potential sale of its stake in West Qurna 2 to Sinopec last summer, the oil minister intervened.

It was previously undisclosed that Sinopec was the intended buyer for Lukoil’s stake. To incentivize Lukoil to stay, the Iraqi government eventually approved a plan for the Russian firm to explore another field known as Block 10, following its discovery of an oil reservoir in 2017. Shortly after this approval, Lukoil abandoned the idea of selling its stake in West Qurna 2.

In recent years, BP has also engaged in discussions with the Iraqi government about its future options in the region. The company ultimately decided to restructure its stake in Rumaila into a standalone venture while the Iraqi government worked to retain BP’s international presence.

When Exxon indicated a desire to withdraw from Iraq in January 2021, U.S. officials advised against this move, echoing Iraqi concerns about a potential vacuum that could invite Chinese firms to fill the void. Subsequently, U.S. officials consulted Exxon on what conditions would encourage it to remain in Iraq.

Exxon had previously reached an agreement to sell its stake in West Qurna 1 to CNOOC and PetroChina, both affiliated with the China National Petroleum Corporation. However, Iraq did not approve the transaction, even as it held the authority to do so.

In a rare move, Iraq’s oil ministry attempted to facilitate a deal on Exxon’s behalf, offering its stake to other Western firms, including Chevron. However, no offers materialized, leading Baghdad to declare that its own state-run Iraq National Oil Company would acquire the stake, despite the company being in the process of revival after years of inactivity.

The oil industry in Iraq primarily relies on technical service contracts that allow foreign companies to recover costs plus a fee, while the Iraqi state retains ownership of the reserves. However, major oil firms often favor contracts that allow a share of profits.

For Chinese firms, the priority is securing stable oil supplies to support their growing economy, rather than maximizing investor returns.

Despite signs that Iraq is attempting to make its contractual terms more appealing—such as the $27 billion deal signed with TotalEnergies—disputes over terms have caused some agreements to stall.

Oil executives remain skeptical that Iraq will introduce significantly better terms, and analysts suggest without substantial improvements, preventing the exit of international firms may be increasingly challenging as the energy landscape evolves.