Following the Iraq Oil Ministry’s recent dispatch of exclusive invitations to several major U.S. energy firms to develop the country’s huge West Qurna 2 oilfield after the forced exit of Russian oil number two Lukoil, American oil giant Chevron has emerged as a leading contender. This should occur after an interim nationalisation of the field intended to keep production going as the Russian firm completes its withdrawal. The company is also expected to move ahead shortly with the development of the Nasiriyah project, which comprises four oil exploration blocks in southern Iraq’s Dhi Qar province, as well as the development of the Balad oil field in Salah al-Din province. All of this comes as Chevron and and private equity group Quantum Energy Partners are teaming ?up to bid for all of Lukoil’s estimated US$22 billion of international assets, following a dramatic tightening of sanctions by the U.S. in recent weeks. So, does this finally mark a decisive shift in Iraq’s geopolitical stance back towards the U.S. and its Western partners, away from Russia, China, Iran, and their allies?
The opening for Chevron and other Western firms to re?enter Iraq stems from a carefully calibrated escalation of sanctions by Washington, London, and Brussels. Most recently, this included measures introduced by the U.S. on 22 October last year targeting Russia’s top two oil producers — Lukoil and Rosneft — including any entity in which they hold more than a 50% stake. Between them, the two companies export approximately 3.1 million barrels of oil per day, which the West sees as vital to Russia’s ability to keep funding its war in Ukraine. Very shortly afterwards, Lukoil relinquished its interests in Iraq, including the giant West Qurna 2 field — a “major turning point” in the West’s pushback against growing Chinese and Russian influence in the country, as one senior Washington?based legal source working closely with the U.S. Treasury told OilPrice.com at the time. Lukoil’s exit from West Qurna 2 was quickly followed by Rosneft’s scaling back operations its operations in Iraqi Kurdistan, reducing its stake in the vital Kurdistan Pipeline Company from 60% to 49%.
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The speed with which Russia’s top two oil firms reacted underscores how seriously Moscow is taking the latest sanctions — and is likely to be read in Beijing as a signal to tread far more carefully with the second presidential administration of Donald Trump than it did with the first, as analysed in full in my latest book on the new global oil market order. A very senior adviser to Trump during that period exclusively told OilPrice.com recently: “We didn’t know how difficult it was to get things done back then, or the best way to do them to get them through quicker, but in the break [between Trump’s first and second presidency] we worked all that out and came up with detailed plans, and that’s what you’re seeing now.” The latest measures targeting Lukoil and Rosneft — and by implication all other Russian and Chinese firms operating in Iraq — form part of a full suite of blocking sanctions overseen by the U.S. Treasury’s Office of Foreign Assets Control (OFAC). Targeting Russia’s top two oil firms marks a major escalation from previous sets of sanctions that encompassed lower-tier firms such as Gazpromneft and Surgutneftegas, which were in turn part of Washington’s gradual ‘tightening of the screws’ on Putin. These moves have been reinforced by the European Union’s (E.U.) continued mirroring of such prohibitions, as seen in its 19th sanctions package, which included measures against Russia’s shadow fleet of vessels used to evade restrictions.. These included additional measures targeting Russia’s shadow fleet of vessels used to evade current restrictions. For the first time, the E.U. also targeted Russia’s crucial liquefied natural gas (LNG) sector, having earlier agreed to halt all Russian gas imports by 1 January 2027 — a full year earlier than previously planned.
Before Washington and its Western allies started to turn the screws on Russia and China early in Trump’s second term, Moscow and Beijing had been acting with increasing boldness in Iraq and across the wider Middle East. After the U.S. formally ended its combat mission in Iraq in December 2021, China accelerated its acquisition of new fields in the south, while Russia consolidated its disruptive role in the north through Rosneft and expanded its presence in the south through Lukoil’s West Qurna 2 contract, as also detailed analysed in my latest book on the new global oil market order. These moves have resulted in Chinese companies now holding direct stakes in around 24 billion barrels of Iraq’s reserves and responsibility for producing roughly 3 million barrels per day. In effect, more than a third of Iraq’s proven reserves and two?thirds of its current production are managed by China. At the same time, continued U.S. and allied military presence in Iraq became the target of heightened pressure from Iran?backed militias — with direct and indirect support from Russia and China — through rocket fire, drone strikes, and roadside bombs. Western oil firms faced additional challenges from the entrenched corruption in Iraq’s oil and gas sector, prompting several to scale back or withdraw, including ExxonMobil, Chevron, BP, Shell, TotalEnergies, and ENI.
Russia and China’s aim at that point was clear: push Western firms out of Iraq, thereby giving Iran greater scope to extend its influence across the region as a proxy for Moscow and Beijing, at the expense of Washington, London, and Brussels and their traditional regional partners in Saudi Arabia, the UAE, Kuwait, and Bahrain. As a very high?ranking Kremlin official told OilPrice.com some years ago: “By keeping the West out of energy deals in Iraq, the end of Western hegemony in the Middle East will become the decisive chapter in the West’s final demise.” On the other side of geopolitical divide, the U.S. and its allies believe that breaking the multi-layered links between Iraq and Iran would significantly weaken both Baghdad’s neighbour and its key sponsors, China and Russia. The U.S. and Israel also have a further strategic interest in utilising the Iraqi Kurdistan region as a base for ongoing monitoring operations against Iran. The West additionally sees this northern territory as a critical security bridge from NATO member Turkey into the Middle East and beyond.
However, as new Western sanctions have dropped into place, so its major firms have increasingly re-established their presence on the ground in Iraq — and in critical parts of its oil and gas infrastructure. France’s TotalEnergies is leading a US$27 billion four-pronged deal that includes completing the Common Seawater Supply Project. This is the key project that will determine whether Iraq is ever able to meaningfully increase its oil production, and — done correctly — it could see output rise to 12 million barrels per day, as fully analysed in my latest book. Meanwhile, Great Britain’s BP has agreed a US$25 billion five?field deal in northern Iraq, which the West can subtly leverage to counter Russian and Chinese efforts to eliminate the Kurdistan region’s semi?independence and fold it into a pro?Russia, pro?China Baghdad. And on?the?ground development of Iraq’s biggest and best oil fields, such as West Qurna 2, by Western majors like Chevron, should further anchor Baghdad’s interests with those of the West. Currently producing up to 480,000 barrels per day (bpd) of oil, the original development plan for the West Qurna 2 field – with estimated recoverable oil reserves of around 13 billion barrels and one of the lowest lifting costs in the world at just US$2-3 per barrel — was to produce 1.8 million bpd. This was amended in 2013 to a three?stage plan with a peak of 1.2 million bpd. At the same time, the targeted initial capacity of the fields comprising the Nasiriyah Project was 600,000 bpd. It looks reasonable to conclude that if Baghdad continues down this path, Iraq’s long?anticipated pivot back toward the West may finally begin to take shape — and this time, the momentum behind it would appear far harder for Moscow, Beijing, or Tehran to reverse.
By Simon Watkins for Oilprice.com
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