Russian And Chinese Focus Alights On Iraq’s Strategically Vital Akkas Project

Yves here. As I regularly stress, Simon Watkins regularly provided early and important intelligence about developments in the oil and gas industry, particularly in the Middle East, along with comments on their geopolitical importance. However, as you can see here, Watkins also brings a lot of Cold War baggage along with him. Regardless of what greater designs one attributes to China and Russia, it’s a remarkable proof of US failure that they are becoming major gas development partners with Iraq after our hugely expensive wars and aftermath there.

By Simon Watkins, a former senior FX trader and salesman, financial journalist, and best-selling author. He was Head of Forex Institutional Sales and Trading for Credit Lyonnais, and later Director of Forex at Bank of Montreal. He was then Head of Weekly Publications and Chief Writer for Business Monitor International, Head of Fuel Oil Products for Platts, and Global Managing Editor of Research for Renaissance Capital in Moscow. He has written extensively on oil and gas, Forex, equities, bonds, economics and geopolitics for many leading publications, and has worked as a geopolitical risk consultant for a number of major hedge funds in London, Moscow, and Dubai. Originally published at OilPrice

• Russia and China are positioning to benefit from Iraq’s sixth gas licensing round.
• The huge Akkas gas field and the surrounding area are absolutely crucial in Iraq’s strategic plan for natural gas.
• The field itself has around 5.6 trillion cubic feet of proven reserves, and Iraq’s Oil Ministry plans for it to produce around 400 million cubic feet per day of gas.

Any major project connected to Iraq’s oil and gas sector has an incalculably greater significance than just extracting oil or gas. Situated in the heart of the Middle East, sharing its eastern border with Iran, its northern border with Turkey, its western border with Syria and Jordan, and its southern border with Saudi Arabia, Iraq is perhaps the single most geopolitically important country to Russia, China, and the U.S. in the entire region. In turn, the lawless western desert province of Anbar is perhaps the most geopolitically vital area in all of Iraq. And the most strategically important position in Anbar is the huge Akkas gas field. It is little wonder, then, that Russia and China have been angling for the best position to benefit from Iraq’s sixth gas licensing round, centre stage of which will be the bidding for the giant Akkas gas field and its surrounding area.

The field itself has around 5.6 trillion cubic feet of proven reserves, and Iraq’s Oil Ministry plans for it to produce around 400 million cubic feet per day of gas. But that is not the point at all – it could have nothing in it, and Russia and China would still do anything to get it. One core reason is that oil and gas companies are legally entitled to secure their oil and/or gas field operations around the world through whatever means they feel necessary. In practical terms, this can include stationing a massive heavily-armed security force around an oil and/or gas field. Such a site can also house anyone else that the company wishes, in whatever job function they care to label them. In China’s case, this link between the corporate world and the state is explicit. For the many national-level state firms (and virtually all others), board directors and company executives are under the standing instruction to ‘execute the will of the Central Committee of the China Communist Party’. A similar directive applies to Russian state companies. In the West, the links between the corporate world and the state are much less direct. In sum, though, the outcome is largely the same: an oil and/or gas field exploration and development site anywhere in the world can effectively be regarded as part of the country of the company that operates it, not as part of the country in which it is geographically situated.

For China, then, a growing presence in Iraq brings several significant advantages to its overarching plan to act as – at least – the global superpower counterpoint to the U.S. One of these, as reiterated recently in the Iraq Cabinet meeting that gave its full support to rolling out all aspects of the ‘Iraq-China Framework Agreement’ signed in December 2021, is plentiful cheap oil, gas, and petrochemicals. This agreement is very similar in scope and scale to the all-encompassing ‘Iran-China 25-Year Comprehensive Cooperation Agreement’, as first revealed anywhere in the world in my 3 September 2019 article on the subject and fully examined in my new book on the new global oil market order. A key part of both deals is that China has first refusal on all oil, gas, and petrochemicals projects that come up in Iraq for the duration of the deal, and that it is given at least a 30 percent discount on all oil, gas, and petrochemicals it buys. Another key part of the Iraq-China Framework Agreement is that Beijing is allowed to build factories across the country, with a corollary build-out of supportive infrastructure. This includes – importantly for its ‘Belt and Road Initiative’ – railway and other transport and logistical links, all overseen by its own management staff from Chinese companies on the ground in Iraq.

For Russia, the stakes are even higher. Iraq – under the enduring influence of Iran – is a key part of the Shia Crescent countries over which Moscow extends its influence across the Middle East, as also analysed in depth in my new book. This augments the geopolitical power it wields in and around its Former Soviet Union (FSU) satellite states. Already in a controlling position in all key countries in the Shia Crescent of power in the Middle East – Lebanon, Syria, Iraq, Iran, and Yemen (via Iran) – Russia continues to work on those countries on the edges of the Crescent in which it already directly or indirectly had a foothold. These include Azerbaijan (75% Shia and an FSU state) and Turkey (25% Shia and furious at not being accepted fully into the European Union). Others also remain longer-term targets, including Bahrain (75% Shia) and Pakistan (up to 25% Shia and previously a sanctuary to sworn-U.S. enemies Al Qaeda and the Taliban). Iraq is the vital link for Russia, then, between Iran (over which it has significant control, along with China) and Syria – the biggest country on the western side of the Shia Crescent.

The Akkas gas field itself is one of three big gas fields that form a skewed triangle across southern Iraq, stretching from the Mansuriya field near the eastern border with Iran, down to Siba field in the south (extremely close to the key Iraqi Basra export hub), and then all the way west across to Akkas itself (extremely close to the border with Syria). Russia thought it had finally gained control over these three sites when in September 2019 its Stroytransgaz signed a preliminary contract with Iraq’s Oil Ministry to develop the hitherto virtually unknown Block 17 in Iraq’s lawless wasteland Anbar province, as also analysed in depth in my new book. A place so violent and unpredictable that it was even avoided where possible by Islamic State, the Block 17 site in Anbar province was perfect for Russia’s purposes, as it was right in the middle of what the U.S. military used to call ‘the spine’ of Islamic State where the Euphrates flows westwards into Syria and eastwards into the Persian Gulf, extremely close to the border with Iran.

Along the spine running from east to west are the historical ultra-nationalist and ultra-anti-West cities of Falluja, Ramadi, Hit and Haditha, and then Iraq turns into Syria, and it is just a short hop to the key strategic ports of Banias and Tartus, and to Latakia – all three of which are crucial globally strategic sites for Moscow. The Syrian port of Tartus remains a huge naval base for Russia and the only Mediterranean port it has access to. The port is just a short ride from Khmeimim airport, which – under a deal struck in 2015 – became a dual-use civilian-military airport-airbase for use by Russia. And just a short flight away from those two key assets is Russia’s Latakia intelligence-gathering listening station. Meanwhile, Banias had long been earmarked as the end point for the long-planned Iran-Iraq-Syria pipelines that would move Iranian, and later Iraqi, oil and gas from Iran through Iraq to Syria, and then into the less rigorously policed ports of southern Europe. This route would not only allow for the movement of sanctioned Iranian oil and gas into Europe, but also of anything else that Russia and Iran want to get into the continent without too many checks. This has long been the final part of Russian and Iranian plans to build a ‘land bridge’ from Tehran to the Mediterranean Sea by which they could exponentially increase the scale and scope of weapons delivery into southern Lebanon and the Golan Heights area of Syria to be used in attacks on Israel, as also analysed in depth in my new book on the new global oil market order. This core aim of this policy was to provoke a broader conflict in the Middle East that would draw in the U.S. and its allies into an unwinnable war of the sort seen recently in Iraq and Afghanistan.

It should come as no surprise, then, that – according to a source who works closely with Iraq’s Oil Ministry spoken to exclusively by OilPrice.com last week – Russia has now received assurances from the Iraqi government that it will be awarded an exploratory and production licence for the Akkas gas field. The enormous pressure that Russia brought to bear on Baghdad, both through its activities in the south of the country and through its tight grip over Kurdistan’s oil and gas sector in the north, was augmented by heavy lobbying of Iraq’s Oil Ministry from elements of Iran’s Islamic Revolutionary Guards Corps, added the source. “So the Russian licence will allow its chosen companies to subcontract parts of the contract for periods of 5-10 years during the 20-year license period, and this will heavily feature Chinese companies,” he concluded.