Iraq’s oil industry sees surge in Chinese investment amid western retreat

China’s independent oil companies are making a significant push into Iraq’s oil sector, with plans to double their output in the country to 500,000 barrels per day (bpd) by 2030. This surge in activity comes as Iraq, the second-largest oil producer in OPEC, looks to attract new investments and meet ambitious production goals. These smaller Chinese firms, led by veterans of China’s major state-owned energy giants, are capitalising on lucrative contract terms and lower operational costs.

China National Petroleum Corporation (CNPC), which currently dominates Iraq’s oil output, controls over half of the country’s production at major fields such as Haifaya, Rumaila, and West Qurna 1. However, the latest influx of smaller, privately run Chinese firms into Iraq is shifting the landscape. Companies such as Geo-Jade Petroleum, United Energy Group, Zhongman Petroleum, and Anton Oilfield Services have won significant exploration licenses and are now betting on Iraq’s improved investment climate and growing political stability.

A changing landscape for Iraq’s oil industry

The transition to profit-sharing contracts, implemented by Iraq’s oil ministry a year ago, has proven to be a key factor in attracting smaller Chinese firms. These new agreements offer greater financial flexibility compared to the previous fixed-fee contracts, which were more common during the era of major Western oil players like ExxonMobil and Shell. Smaller Chinese firms are also proving to be more nimble and cost-effective in their operations, with a reputation for rapid project execution, strict adherence to timelines, and a higher risk tolerance.

Chinese companies are reducing drilling costs, with prices now half what they were a decade ago. Executives say that these firms can develop an oilfield in as little as two to three years, much faster than their Western counterparts, who typically require five to ten years. “Chinese independents have much lower management costs compared to Western firms and are also more competitive versus Chinese state-run players,” Dai Xiaoping, CEO of Geo-Jade Petroleum, told Reuters.

One of the notable projects being led by Geo-Jade is the South Basra project, which involves revitalising the Tuba field in southern Iraq and expanding its production capacity to 100,000 bpd by mid-2027. This project will also include a refinery and petrochemical complex, with investments totalling billions of dollars.

Challenges ahead for Chinese firms

While China’s smaller oil firms are helping to drive down industry costs, there are concerns regarding transparency and the use of Chinese labour in Iraq. Former Basra Oil operations manager Muwafaq Abbas raised concerns about the technical standards and reliance on Chinese staff, which has often left local Iraqi workers in lower-paying positions. Despite these challenges, Iraq remains keen to bolster its oil output, with a goal of increasing production to over 6 million bpd by 2029.

Though Chinese companies are making significant strides in Iraq, some Western firms are returning to the market. TotalEnergies, for example, announced a $27 billion project in 2023, and BP is expected to invest up to $25 billion in the redevelopment of fields in the Kurdish region.