China picking up lots of oil in Iraq

From among the most outspoken of critics of the 2003 U.S.-led invasion to topple Saddam Hussein, China has emerged as one of the biggest economic beneficiaries of the war, snagging five lucrative deals. While Western firms were largely subdued in their interest in Iraq’s recent oil auctions, China snapped up three contracts, shrugging off the security risks and the country’s political instability for the promise of oil.

The quest for crude has left a heavy Chinese footprint in a number of countries where others have shied away, whether because of violence, human rights violations or sanctions.

In the broader Middle East, China has helped develop and expand the oil industry in Sudan, a nation whose president is under international indictment for war crimes. It has also signed deals in Iran, where the hard-line government faces a fourth round of U.N. sanctions over its nuclear program. Iran has denied claims by the U.S. and others that its nuclear efforts are geared to weapons production.

The result of its efforts is that about half of China’s oil comes from the region. It has ousted the United States as OPEC kingpin Saudi Arabia’s top oil customer. Saudi Arabia has also set up a joint venture refinery in China.

Iraq, however, has emerged as one of Beijing’s best hopes for oil in a world where cheap, reliable sources of new crude are increasingly harder to obtain. While dealing with Iran carries political baggage for China, Iraq is a more calculated risk.

Sanctions in place against Iran sharply limit investments in the country and have largely precluded Western oil majors from aggressively following up on projects there. New sanctions by the United Nations will expand those restrictions. Even so, Iran is China’s third-largest supplier.

Standstill in Iran

“Iraq is extremely important for Chinese companies’ growth strategy, especially given that Iran is likely to face much of a standstill for years,” said IHS Global Insight’s Mideast oil analyst, Samuel Ciszuk.

The country, whose oil sector has been battered by years of neglect, war, sabotage and under-investment, produces only about 2.4 million barrels per day — well below its pre-2003 invasion production levels.

But contracts awarded during two oil and gas field auctions over the past year are expected to raise output to as much as 12 million barrels per day within seven years, according to Iraqi officials. Analysts say those estimates are too ambitious.

Either way, production will rise, and China will play a role and stands to benefit.

Houston Chron