Western oil companies have started to pull out of central and southern Iraq and are being replaced by Chinese companies following terrorist attacks against facilities and reports of extortion from tribes, militias and bureaucratic officials in state institutions.
Meanwhile, Iraq has halted its plans to increase investments in developing oil fields due to a lack of demand in global markets. This comes as Iraq and 22 other member states of the OPEC+ group agreed Sunday to increase oil production by 400,000 barrels per day beginning next month.
Major oil companies BP and LUKOIL are considering halting operations in Iraq, Minister of Oil Ihsan Abdul Jabbar told Iraq’s parliament on July 4. Other oil giants have already left, among them Exxon Mobil, Occidental Petroleum and Shell, which retreated from Basra’s oil fields years ago.
Abdul Jabbar admitted on June 30 that the investment and security environment in the country has deteriorated, forcing global oil companies to reconsider their positions.
He claimed Chinese companies want to buy the shares of the companies seeking another market and that a Chinese subcontractor working in one of the Western oil fields makes more profit than Exxon Mobil did.
Since the Iraqi-Chinese agreement was signed under Adel Abdul Mahdi’s government in 2019, Western oil companies have faced repeated missile attacks, and in Nasiriyah, their headquarters have been besieged and shut down by nearby residents and new graduates seeking job opportunities. This opposition led to the halt of production in some oil fields.
Ihsan al-Attar, a Ministry of Oil official who is on the committee that regulates oil licensing, said the investment environment in southern and central Iraq is unsuitable and hostile to investors, and some local residents consider oil companies as 'colonialists,' touching a longtime nationalist nerve in Iraqi politics and society. He noted that foreign workers cannot safely walk the streets of cities without security, and their work and living locations must be protected by security companies.
As a result, he added, many foreign workers refuse to come to Iraq, and thus the Ministry of Oil must spend millions of dollars per month on additional costs such as high wages and transportation to attract workers, as well as contracts with security companies and life insurance, which Attar said amounts to $1 million per person spent by the ministry.
He said Western companies, such as Shell, Exxon Mobil and others, are currently leaving southern Iraq and being replaced by Chinese companies that have more relaxed standards than those of Western companies. He indicated that Iraq's environment has become hostile to American and European companies, which discourages companies from around the world from investing in the country and affects other economic sectors beyond oil.
Iraq exports more than 30% of its oil to China, and it is the third-largest exporter to China after Saudi Arabia and Russia.
Parliamentary Integrity Committee member Youssef al-Kalabi said during a session hosting the Minister of Oil that the Chinese ambassador in Baghdad is blatantly interfering in the work of the Ministry of Oil and in issues not related to diplomacy or the protection of his country’s citizens. He did not provide details on the alleged interference. Kalabi noted that the parliament asked the Ministry of Foreign Affairs to stop any interference by the Chinese ambassador in the work of the Ministry of Oil.
He claimed that a Chinese intelligence officer working in one of the oil fields who is suspected of corruption and is prohibited from entering Iraq was brought by the Chinese ambassador to Iraq.
Chinese companies are gaining ground in the energy sector, with Al-Faw refinery being awarded to a coalition of Chinese companies at a cost of $7 billion. The Chinese government will finance operations at the refinery. Chinese companies are also working as primary or subcontractors at 15 oil fields in southern Iraq. Iraq has 78 oil fields that China wants to develop.
Muhammad Rahim, a member of the Extractive Industries Transparency Initiative, headed by the Iraqi Oil Minister, told Al-Monitor the companies’ withdrawal is due to several factors, including Iraq’s commitment to the parameters of the OPEC+ agreement, which include limiting production. The stipulations of OPEC+ make it difficult for the country to reach its target production goal of 8 million barrels a day in the coming years.
Rahim claimed that some Western companies have established companies in China and come to Iraq under the umbrella of these companies. Chinese workers were able to adapt easier to life in Iraq, Rahim said. He noted that bureaucracy and the weakness of the central government’s process to implement and award contracts for projects has greatly affected companies’ work, adding that the process of awarding a certain company a contract can take several years to be settled.
He noted that foreign companies face extortion from the state, militias and others, and that equipment imported and used in the oil fields remains held up in the ports for many months with militias that have influence in the ports requesting bribes to have it released.
The withdrawal of international oil companies and the purchase of their shares by the companies of the Ministry of Oil may lead to a decline in the country’s oil production, which amounts to 4.69 million barrels per day. The Ministry of Oil is unable to bring in new technology due to the financial crisis, and Chinese companies’ growing stakes in international companies could have repercussions amid their record of poor performance and objections to their work from the Ministry of Oil.