Oil and the Beijing-Baghdad Trade Axis

Iraq could become the world’s next “oil superpower,” writes J. Michael Cole in The Diplomat, as China has stepped in with considerable capital to create an unlikely partnership that could define a new era of global petro-politics:

The implications of this shift away from the West in favor of China will be far-reaching for both and the Middle East. About two thirds of ’s estimated reserves of 143.1 billion barrels and natural gas holdings of 126 trillion cubic feet are located in southern , the same parts of the country that Western companies are pulling out of. Industry sources maintain that by 2020 Chinese companies could be involved in projects within that account for at least 2 million barrels per day (bpd) of the estimated 6 million bpd will produce by then (from 3.1 million bpd at present), and may be aiming for 3.5 million bpd by 2035. According to the International Energy Agency (IEA), ’s output could reach 8.3 million bpd by 2035.

To put Iraq’s potential in context, by comparison, China imported about 970,000 bpd from in 2011 and currently purchases about 520,000 bpd from , or about half of ’s total exports of 1 million bpd, which is down from 2.3 million bpd in 2011 before Western sanctions over its suspected nuclear weapons program kicked in (prior to the sanctions, China accounted for roughly 20 percent of ’s exports). However, the U.S. Energy Information Administration (EIA) estimates that falling production resulting from lack of investment, a high rate of natural decline in maturing oil fields, and the impact of the sanctions regime, will reduce the quantity of oil that is available for export and thus reduce ’s importance as an oil exporting country. , another important source of crude for China, exports about 1.7 million bpd, of which China accounts for 10 percent. There as well, natural decline, lack of investment, and rising domestic consumption have led to an about one-quarter decline in exports since 2001. For its part, produced 9.8 million bpd of crude in 2011, of which 7 million bpd were exported with China buying about 375,000 bpd. Unresolved territorial tensions, Moscow’s tendency to use oil exports as an economic weapon when relations sour, and ’s growing mistrust of China’s “rise” may have convinced the Beijing leadership that cannot be counted on to serve as a reliable source of energy, its vast resources notwithstanding. And while , a beacon of stability, shows great potential for China, Beijing is aware that major investments by China will remain a controversial issue in , which could cause severe delays to the process of transforming the North American giant into a major source of energy for China.

From the above figures, it is therefore easy to see why Beijing would increasingly turn to Iraq, possibly the next “energy ,” as a source of crude to ensure it can continue to feed China’s economic expansion well into the future.