China-Iraq-US: A “Win-Win” for All?

http://www.chinausfocus.com/slider/china-iraq-us-a-%E2%80%9Cwin-win%E2%80%9D-for-all/ Richard Weitz January 17, 2012 Slider China’s policy towards Iraq is often mischaracterized as being determined by oil. But unlike Iran and Saudi Arabia, Iraq has never been a major oil exporter to China. Indeed, Beijing’s lukewarm opposition to the 2003 Anglo-American invasion partly resulted from China’s willingness to sacrifice Iraqi oil opportunities for other benefits, such as the U.S. government’s declaration that the “East Turkestan Independence Movement (ETIM)” is a terrorist organization and U.S assurances that the United States would not attack North Korea’s nuclear facilities. Nor is Chinese policy toward Iraq driven strongly by anti-American motives. For the past two decades, the PRC has neither followed nor strongly opposed U.S. policy regarding Iraq. In the lead-up to the Gulf War (1990-91), China adhered to a carefully crafted neutral stance, abstaining from the U.N. vote authorizing the use of force while both condemning Iraq for invading Kuwait and repeatedly calling for a peaceful solution. Later in the 1990s, China joined France and Russia in the calling for early lifting of sanctions against Iraq. In 2002, as the United States pushed for an ultimatum on Saddam Hussein to comply with disarmament resolutions, China voted in favor of U.N. Resolution 1441 to give Iraq one last chance to comply. More recently, in developing relations with Iraq through securing construction contracts and access to Iraq’s oil, China has pursued an approach that does not conflict with U.S. objectives regarding Iraq. Of course, China is not going to abstain from seeking opportunities to access Iraq’s oil or participate in other commercial ventures in the country. Iraq’s relationship with China has expanded significantly since 2003. China has won stakes in 3 out of the 11 oil contracts offered by the Iraqi government, in addition to renegotiating a Saddam-era deal worth around $3 billion. Chinese firms have been willing to tolerate high levels of risk in order to gain access to some of Iraq’s most lucrative oil contracts. These deals have collectively made China the biggest investor in Iraq’s oil and gas industry, which is one of the world’s largest. Iraqis are naturally eager to sign deals with China’s companies given their robust PRC government backing, their abundant investment funds, and their extensive experience working in challenging security environments. Companies from many other countries have been reluctant to invest in the country due to continued political and economic turmoil, which has greatly hampered Iraq’s economic recovery. Chinese investors have proved willing to overlook these difficulties. The Iraqi government has also encouraged PRC companies to enter other economic sectors besides oil. Iraq’s underdevelopment and lack of investment goes beyond energy infrastructure, to encompass infrastructure of all kinds across the nation. Chinese firms are filling this gap. In addition to the oil sector, they have been investing in construction, government services and even tourism in Iraq. The Chinese have made inroads into the cement industry, a significant and profitable business sector in Iraq given the numerous infrastructure projects. China has also built a power plant in southern Iraq and entered into negotiations with Iraq to construct residential facilities for laborers, to maintain compliance with Iraq’s restrictive investment laws. China has recently taken steps to secure additional deals in Iraq. In February 2010, Beijing cancelled 80% of Iraq’s $8.5 billion debt to China, a move designed to further Chinese business interests in the country. This waiver came on the heels of a two-year period (2009-2010) in which China and Iraq signed trade deals worth approximately $3.8 billion. Sino-Iraq relations will likely continue to strengthen in the near future. China, which imports more than half its oil, needs Iraqi energy, while Iraq, which continues to suffer from sectarian violence and an unstable political environment, depends heavily on China’s willingness to invest in the country despite these lingering problems. China also promotes security and stability in the region, a key component for investing in their oil and bidding on oil contracts. As currently structured, the China-Iraq relationship benefits both parties: Iraq receives much needed foreign investment and security assistance, while China gains access to coveted Iraqi oil reserves. And the United States and other countries also benefit from the presence of China in Iraq. The Chinese presence dilutes Iran’s invariably large influence in Iraq. Some Iraqis and Chinese might also have this balancing idea in mind. In May 2010, the Chinese oil company CNOOC, in conjunction with a Turkish firm, began upstream work on the Maysan oil field, bordering Iran. The previous year, Iranian troops crossed the Iraqi border for a short time and seized the field. With Chinese companies developing Maysan and other Iraqi fields, and China’s growing economic stake in Iraq, Beijing will assert considerable pressure on Iran to avoid future troublemaking. China will likewise encourage restraint in Baghdad with regard to both Iran and other Gulf states that export oil to China, such as Kuwait and Saudi Arabia. In addition, Iran’s influence with Beijing will decrease the more oil China can import from Iraq. The West needs Beijing’s support to pressure Tehran to reign in its nuclear ambitions. China also shares the U.S. and Iraqi interest in avoiding renewed sectarian or other conflict in Iraq, whereas Tehran wants a weak and divided Iraq unable to resist Iranian influence. Richard Weitz is a Senior Fellow and Director of the Center for Political-Military Analysis at the Hudson Institute. His current research includes regional security developments relating to Europe, Eurasia, and East Asia as well as U.S. foreign, defense, homeland security, and WMD nonproliferation policies