Old adversaries cut deals in the new Iraq

Strange things are happening in Iraq.

Opec’s second-largest oil producer has a capacity of almost 5 million barrels per day and wants to increase that to 6 million bpd over the next three years.

In May last year, our columnist Robin Mills noted that in an auction of oil and gas blocks, Chinese companies won 10 bids and a local group won three. Eight went unawarded. No other oil company, Western or otherwise, received anything.

Majors such as ExxonMobil, Shell, Equinor and Occidental had steadily withdrawn from Iraq’s oil sector. Violence aside – a big aside – the terms on offer and the margins were too thin.

As a result, “China’s dominance in Iraq is extreme,” Robin wrote.

This dominance and a couple of other factors – see below – may account for the conversion of the government of Mohammed Shia Al Sudani, the prime minister, to the virtues of the Western oil majors and their electricity engineering counterparts.

In February BP said it was returning to Kirkuk, where it had agreed terms to rehabilitate four oil and gas fields. BP had been in Kirkuk before – but pulled out in 2020. Now, having found renewed enthusiasm for hydrocarbons under Murray Auchincloss, the Anglo-American major is back in northern Iraq.

In 2023 TotalEnergies of France was given a $27 billion contract to develop a much-delayed combined solar, gas, oil and water injection project in the south of the country.

Iraq’s ageing oilfields typically achieve only low yields and need desalinated water to be reinjected to boost pressure.

At the time, the TotalEnergies award was viewed as a poisoned chalice. ExxonMobil had grappled with the scheme for years and withdrew in 2018. But in March, TotalEnergies announced ground-breaking on the solar element of this enormous undertaking. Progress.

There has also been movement on the complex issue of the Ceyhan pipeline that takes oil from Iraqi Kurdistan to the Turkish coast. True, Turkey has not agreed to pay a sizeable fine imposed by a Paris tribunal and the Western oil companies operating out of Arbil are refusing to resume work until they are paid. But Baghdad and Arbil have agreed on the terms of cost recovery to the Kurdish Regional Government. That had looked intractable.

On the electricity front, Iraq has signed memoranda of understanding with two US companies to generate more than 27 gigawatts of electricity, including a giant solar power plant. The MOUs were signed during a visit to Baghdad by 100 US businesspeople. Eh?

One of the companies, GE Vernova, has been in Iraq for the past decade and says it has added up to 19,000 megawatts of power to the national grid.

What is going on? In the first place, it looks as though the Chinese firms are not up to the technical task of advanced oil recovery and gas reinjection that Iraqi fields need.

But it also looks as though the government in Baghdad is freer to act than it was.

Sudani, a former mayor of Amarah in southern Iraq, emerged from the alliance of powerful Iran-backed Shia militias that make up the Popular Mobilisation Forces. The PMF was formed to drive Isis jihadis out of central and western Iraq. But Iran’s ability to project power across the region is not what it was.

Moreover, the resumption of maximum pressure on the Islamic Republic by the Trump administration means Iraq cannot import the gas and electricity from Iran it used to – at least without alienating the US. Iran has itself badly botched its electricity generation and gas sectors and has no capacity to supply others.

• Iraq signs power-generation deals with US companies
• Iraq offers gas site concessions amid power generation issues
• Iraqi gas field awarded to US oilfield services giant

In January Sudani was hosted in London by King Charles and Sir Keir Starmer, the prime minister. This is surely an indication that he feels under less pressure from Iran.

Sudani is standing for re-election in November. Iraq’s long-running power shortages are a sore for the electorate as the country approaches the murderously hot summer. It would seem the Iraqi prime minister recognises that he needs to get stuff done if he is to have a chance of being re-elected. And that means Western oil and electricity companies.

After the last election in 2021, a year-long standoff nearly brought Iraq to its knees as politicians wrangled to form a viable governing coalition. But the constitution just about stood.

The US-led invasion is widely viewed as unsuccessful – Vice President JD Vance has just called it a “strategic disaster” – but one thing the Jay Garners and Paul Bremers of the Coalition Provisional Authority and the experts at the UN bequeathed to Iraq is that constitution. That is no small achievement.  And today we see an Iraqi prime minister, with more freedom to act, doing what he can to be re-elected, even if it involves cutting deals with old adversaries.