How Iraq veered away from US to embrace China in Middle East power shift

One of the most significant topics on Iraq's recent agenda revolves around negotiations with the United States over the potential withdrawal of coalition forces from Iraq. The Iraqi Ministry of Foreign Affairs even issued a statement saying that both sides have agreed to continue the negotiations.

Iraq's call for a hands-off approach is not directed solely at the US. Baghdad made a similar demand that its neighbour Iran too refrain from interfering in Iraq's internal affairs and respect its sovereignty.

During a meeting in Iraq with Ali Akbar Ahmadian, Secretary of Iran's Supreme National Security Council, on February 5, Iraqi Prime Minister Mohammed Shia Al Sudani emphasised that Baghdad will not compromise on its sovereignty and security.

A few days later, the Central Bank of Iraq revoked the operating license of the National Bank of Iran, which was earlier sanctioned by the US in 2018 for financing Shiite militia organisations operating in Iraq.

In June last year, Iraq also revoked the dollar transfer and trade permits of 14 banks engaged in dollar smuggling to Iran to circumvent the sanctions.

The chain of events makes it clear that many stakeholders in Iraq are uneasy with the transformation of Iraqi territory into a battleground between the US and Iran and seek an end to this situation as soon as possible.

As Iraq tries to get out of the vortex of the US and Iran, Baghdad appears to be veering towards China as an alternative, given Beijing’s global ascent and its burgeoning interest in the Middle East.

Growing footprints in Middle East

Half of China's oil imports are sourced from the Middle East, with Saudi Arabia and Iraq being its foremost energy partners within the region.

China's oil imports from the Middle East have not been limited to unilateral trade, and it has compensated a significant part of its expenses by exporting weapons, technology, labour and other products to the region or by carrying out joint investment projects in various industries.

For example, Saudi Arabia's Aramco and China's Sinopec signed a $3.5 billion deal under which Riyadh built an oil refinery in China's Fujian province. On the other hand, the China-Saudi Arabia Oil Refinery in China, worth $1.5 billion, has committed to supply China with 10 million tons of oil for 50 years.

For Beijing, maintaining stability and order in the Middle East is crucial to China's global projects, particularly regarding energy supply.

Therefore, China aims to foster regional balance among the significant confronting powers – Iran-Israel, Iran-Saudi Arabia and Israel-Arab world – in the region through diplomatic means and to ensure this balance continues.

China's fundamental approach towards the conflicts and clashes of interest unfolding in the Middle East is based on the principle of neutrality. In this process, Middle Eastern countries have emerged as significant markets for Chinese products, with a substantial portion of the region's imports originating from the Asian giant, the world’s second-largest economy.

China's prioritisation of economic preferences does not imply neglect of its security and military dimensions. What is crucial for China is not to portray itself as a superpower with global responsibilities but rather to present itself as a country capable of fostering sustainable relations with various nations.

As an initial step in the development of its military presence in the Middle East, China is engaged in endeavours to conduct joint exercises, establish joint patrols, provide consultations, and create joint military intelligence platforms with the countries in the region.

China's arms exports to the Middle East and North Africa increased by approximately 40 percent between 2017 and 2020 compared to 2013-2017.

A significant portion of the unmanned aerial vehicles (UAVs) and unmanned combat aerial vehicles (UCAVs) – commonly referred to as drones – in the possession of countries in the region are of Chinese origin.

The most significant buyers of Chinese weapons in the region include the United Arab Emirates, Iraq, and Egypt. In recent years, countries such as Algeria, Iran, and Saudi Arabia have also increased procurement of Chinese arms.

Additionally, in 2017, Saudi Arabia entered into a $60 billion agreement with China to jointly set up a CH4 drone factory in Saudi Arabia.

The general framework of China's Middle East policies is formed by China's need for energy resources, the routes of the Middle East, and its contribution to the political stability of the region.

The straits in the Middle East and North Africa hold strategic importance for Beijing as the majority of Chinese imports pass through the Strait of Malacca, the Strait of Hormuz, the Bab al Mandeb Strait, and the Suez Canal. Diversification and security of sea routes are also significant for China.

China is known to have made investments in 92 ports worldwide, including Djibouti, Hambantota in Sri Lanka, Gwadar in Pakistan, and Sao Tome and Principe in the Atlantic Ocean.

Energy diplomacy and ensuring the security of energy supply are among the primary focal points of China's foreign policy. Ranking second globally in terms of energy consumption, China places particular emphasis on its relations with Middle Eastern countries to sustain its economic growth and industrial development.

New era of China-Iraq relations

The Iraqi federal government is confronted with a wide range of challenges, from economic hardships to security concerns.

Recent developments in Iraq's energy sector and economic relations indicate a growing inclination towards China as a robust alternative to the policies of the US and Iran.

According to research by Fudan University in China, in 2021, Iraq emerged as the foremost beneficiary of the Belt and Road Initiative, Beijing’s signature project that aims to connect Asia, Europe and Africa through more than 60 countries.

Moreover, China's investments in foreign ventures have predominantly focused on Iraq's construction and energy sectors. During this period, Iraq has ascended to the third position among the countries from which China imports oil, while Chinese contractors secured 87 percent of all energy tenders in Iraq in 2022.

Additionally, it is noteworthy that half of Iraq's oil production is carried out by Chinese firms.

All these signify that China has become a pivotal component of Iraq’s oil sector, which serves as the backbone of its economy.

In November last year, PetroChina, a Chinese company, replaced the US-based Exxon in the Qurna 1 oil field, known to hold over 20 billion barrels of crude reserves.

Given Qurna’s daily production capacity of 500 thousand barrels, it has garnered considerable attention from foreign investors. According to reports in the Iraqi press, the management of Iraq's Naftkhane, Sindbad, and Hoveyzeh oil fields has been entrusted to China's Geo-jade company.

China's significant involvement in Iraq's construction sector is also well documented. For instance, in December 2021, the Iraqi government signed an agreement with two Chinese companies—PowerChina and Sinotec—entrusting them with the responsibility of constructing 1,000 schools and an airport in Iraq.

China's endeavours in Iraq's construction sector and its execution of construction projects in the country stem from the "oil for construction deal" agreed upon between the two nations in 2019.

In essence, China compensates for the oil it purchases from Iraq by providing services and technology. Moreover, notable construction projects undertaken by China in Iraq include the construction of the Al Khairat power plant in Karbala province and the development of the Al Mansuriya gas field.

Another significant aspect of Iraq-China relations is the Great Faw Port project in Basra, which will become one of the largest ports in the Middle East within the BRI’s framework.

With the potential to elevate the evolving relationship between China and Iraq to a strategic level, this project stands out as one of Iraq's most important and strategic endeavours.

Positioned at the mouth of the Shatt al Arab, where the Euphrates and Tigris rivers converge before flowing into the sea from the gulf, this port is envisioned to surpass Dubai's Jebel Ali as the largest container port in the Middle East. When completed, this port project will make Iraq the most strategic country in China's Belt and Road Initiative.

For long the battleground of a proxy war between the US and Iran, Baghdad is now slowly pullıng out of the sphere of influence of these two archrivals. China has stepped in to fill the vacuum for Iraq’s leadership, providing financial and material help in rebuilding the country.

It can only mean a win-win scenario for both Iraq and China.