This Article is From Jun 09, 2010

China reaps benefits of Iraq war with oil deals

Wasit: The Iraqi and Chinese flags flew together proudly over the al-Ahdab oil field in Wasit, central Iraq, on Wednesday, in what has become an increasingly common site as China moves closer to becoming the dominant foreign player in Iraq's recovering oil sector.

From among the most outspoken of critics of the 2003 US-led invasion to topple Saddam Hussein, China has emerged as one of the biggest economic beneficiaries of the war, snagging five lucrative deals.

While Western firms were largely subdued in their interest in Iraq's recent oil auctions, China snapped up three contracts, shrugging off the security risks and the country's political instability for the promise of oil.

The quest for crude has left a heavy Chinese footprint in a number of countries where others have shied away, whether because of violence, human rights violations or sanctions.

Iraq, however, has emerged as one of Beijing's best hopes for oil in a world where cheap, reliable sources of new crude are increasingly harder to obtain.

Iraq, whose oil sector has been battered by years of neglect, war, sabotage and under-investment, produces only about 2.4 million barrels per day - well below its pre-2003 invasion production levels.

But contracts awarded during two oil and gas field auctions over the past year are expected to raise output to as much as 12 million barrels per day within seven years, according to Iraqi officials.

Analysts say those estimates are too ambitious.

Either way, production will rise, and China will play a role and stands to benefit.

China's energy needs are as obvious as they are challenging.

While the world struggled with its worst recession in over six decades, China's economy expanded by 8.7 percent in 2009.

The International Monetary Fund forecasts growth of 10 percent this year.

A recent report by Platts, the energy information arm of McGraw-Hill Cos, found that China's demand for oil hit 8.43 million barrels per day in April, a 12.7 percent increase over April 2009 levels.

Current demand is more than twice China's domestic production.

Of a dozen deals the Iraqi central government awarded since 2003, four went to China.

The Chinese engineers and labourers form Al-Waha Oil Company, working alongside their Iraqi counterparts, drilling wells and preparing the ground to build other infrastructure in the relatively peaceful province, are among the first signs of that new cooperation.

The company started exploring the southeast of Baghdad near the Iranian border last year, but ran into trouble with farmers there after it destroyed some crops.

Iraqi officials stepped in quickly, meeting with local tribal leaders to calm tensions.

The incident showed Iraq's determination to not upset the international oil companies operating in the country.

Chinese officials have since hired 350 people from the area to protect the oil infrastructure, and dozens more will provide support services.

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