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Trillions - 19FortyFive

Could Exxon’s Iraq Oil Stake Go to China?

Oil Jack in the Sunset
Oil Jack in the Sunset

On President Joe Biden’s first day in office, he signed an executive order canceling permits for the Keystone XL pipeline that would have brought oil from Alberta’s tar sands across Montana and South Dakota to Nebraska where it would join with existing pipelines to transport the oil to the Gulf coast. Environmentalists celebrated, but their victory was Pyrrhic.

Rather than stop production at the tar sands, operators at the Athabasca tar sands simply increased rail traffic eight-fold and the Canadian government invested in the expansion of the Trans Mountain Pipeline and perhaps will in the Enbridge Pipeline System to Quebec as well.

China appears happy to benefit.

Now, the same hostility to American energy companies may again benefit China, this time in Iraq.

Oil is crucial to the Iraqi economy. Iraq depends on oil revenue to support 90 percent of its budget and the $7 billion monthly it requires to pay its bloated public sector. Because of the tremendous U.S. investment in both blood and treasure in order to end Iraq’s dictatorship and facilitate Baghdad’s reintegration into a global economy that had largely left it behind, both Republican and Democratic administrations worked to ensure American oil companies would win Iraqi concessions.

Contrary to anti-war activists’ “war for oil” conspiracies, the issue was never profit but rather the facts that American laws better constrain corruption, U.S. technology is more efficient, and U.S. companies’ involvement in Iraq provides the basis for a longer-term and more solid partnership than military cooperation can.

After tremendous White House and State Department lobbying, the Iraqi government not only blocked Chinese companies from taking the lead concession for the West Qurna I field with an estimated 20 billion barrels of recoverable reserves but also ultimately awarded a 20-year concession to Exxon, now in its eleventh year, with an optional extension. Upon receiving the concession, Exxon turned around and included PetroChina as a partner with a 32.7 percent share causing considerable resentment in Iraq. The field met initial expectations and, shortly before the pandemic hit, Exxon was producing 465,000 barrels per day at West Qurna I.

This is not to suggest everything was smooth. In May 2019, as the U.S. government ordered its non-essential personnel to depart Iraq, Exxon withdrew its non-Iraqi staff, a move Oil Minister Thamir Ghadhban called “unacceptable and unjustified.” A month later, however, an Iranian-backed militia launched a Katyusha rocket at a residential and operational compound used by Exxon and other oil firms.

Ultimately, however, Exxon’s reconsideration of Iraq had little to do with Iraq itself. Largely because of COVID-19, Exxon suffered a $22.4 billion loss in 2020, its greatest in four decades. In order to reduce its $70 billion debt and maintain its annual dividend, Exxon’s leadership has sought to spin off assets. Exxon may also hope to consolidate its activities in Guyana which is both closer to the American market and not subject to strategic chokepoints.

As Exxon prepares to leave, it hopes to sell its stake to Chinese concerns such as the China National Petroleum Corp. and CNOOC Ltd. What is ironic is that the Iraqi government appears more concerned today about leaving West Qurna I to the Chinese than the Biden administration is. Iraq’s post-Saddam generation of leaders has matured; they understand that American firms seek a symbiotic relationship while Chinese companies tend to be more exploitive. They also recognize the corollary benefits in terms of democracy and financial transparency that comes with ties to American companies. Many Iraqi officials openly wonder why senior American officials once made these arguments but now appear indifferent if China takes the lead on one of the world’s largest fields. It is a good question.

The Iraqis are wise enough to recognize that if Exxon wishes to depart, it will. They are also correct, however, to ask why the United States does not pressure Exxon to sell its shares to an American company or, barring that a European one. They also ask why Congress is so disinterested after so many Americans lost their lives to give Iraq a second chance. Indeed, several Iraqi officials were shocked when, in discussions with the U.S. Embassy, American diplomats signaled acquiescence to a Chinese state firm buying out Exxon’s interest. Biden and his team may reject Trump-era demands to put America first, never mind that Exxon’s West Qurna I interests date to the Obama administration.

In effect, Biden now puts America last and makes clear not only to Iraqis, but other oil producers across the Middle East that the White House and State Department promises to compete with China are little more than empty rhetoric to cover the fact that America will not stand by its businesses and, in the competition with China simply forfeits

Michael Rubin is a senior fellow at the American Enterprise Institute and a 19FortyFive Contributing Editor. 

Written By

Now a 1945 Contributing Editor, Dr. Michael Rubin is a Senior Fellow at the American Enterprise Institute (AEI). Dr. Rubin is the author, coauthor, and coeditor of several books exploring diplomacy, Iranian history, Arab culture, Kurdish studies, and Shi’ite politics, including “Seven Pillars: What Really Causes Instability in the Middle East?” (AEI Press, 2019); “Kurdistan Rising” (AEI Press, 2016); “Dancing with the Devil: The Perils of Engaging Rogue Regimes” (Encounter Books, 2014); and “Eternal Iran: Continuity and Chaos” (Palgrave, 2005).