As the rebel jihadi army approaches Baghdad, the world is counting the heavy cost of a civil war in OPEC’s second largest oil producer – and China will be among the biggest losers.
Last year China imported 299 million barrels of oil from Iraq, its fifth largest supplier. It imports 60 percent of its crude and will be one of the country’s worst hit by the higher prices that will result from this war.
It is the biggest foreign investor in Iraq, with China National Petroleum Corporation (CNPC) operating four major fields. China has 10,000 nationals working there and supplies 80 percent of the daily necessities which Iraqis consume.
Chen Xianzhong has closed his business in Baghdad and left it in the hands of his local partners. He has bought a ticket to return home this week.
“No matter what happens, I am not optimistic about the present situation,” he wrote on his blog. “There are all kinds of news. One thing of which we can be sure – tens of thousands of people will die in this civil war.
“They are building ditches in the outskirts of Baghdad. It is the last line of defense. Some [Chinese] private traders have already left. You can only leave via the south and even then only by private car or plane. The long-distance buses have all stopped. If all goes smoothly, I will return to China next week,” he wrote.
According to news website Caixin, one CNPC employee working on an oilfield in southern Iraq had been kidnapped by the jihadis; this has not been confirmed by the Chinese embassy in Baghdad.
Of the 10,000 Chinese in Iraq, private businessmen like Chen account for a small proportion. Most work for large state companies: big oil firms, Shanghai Electric building a power station, China Building Materials Construction building a cement plant, China Hydroelectric Power and others building infrastructure projects.
So far the embassy in Baghdad has not issued a withdrawal order; it has advised its nationals to take every precaution for their security and those who are preparing a visit to the country to postpone it.
Chen said employees of China Plant and Machinery Import and Export Co. building a power plant were trapped in the war zone and could not leave their place of work.
The Chinese oil companies have sent home some of their non-essential staff. They have made preparations for an emergency, stockpiling grain, water and other essential materials.
Most of their operations are in the south, which has so far not been affected by the civil war; production is normal.
But the situation is very tense in Baghdad, close to the front line. Most of the Chinese there have left or are preparing to leave; some have returned to China and others have gone to Dubai and other cities in the Middle East.
Because of the war, oil has become scarce and prices have risen five to six times. The price of food has also increased sharply. The government stations that sell cheap petrol have run out of stock, or there are queues for several hours.
“We have our contingency plan,” said Mao Zefeng, joint company secretary of PetroChina. “But, as our fields are all in the south, they are not affected yet.”
The head of Iraq’s southern oil company, Dhiya Jaffar, criticized the evacuations, as the areas where oil is produced for export are mainly in the Shiite south and far from the fighting.
China is Iraq’s biggest oil client; its state energy firms, including Sinopec and CNOOC, hold more than a fifth of the country’s oil projects. Iraq is China’s fifth largest overseas oil supplier, after Saudi Arabia, Angola, Oman and Russia.
In September last year China overtook the United States to become the world’s largest net importer of crude oil and other liquid fuels, according to the US Energy Information Administration (EIA).
While US annual output is likely to rise 31 percent from 2011 to 2014 to 13.3 million barrels a day, driven largely by shale oil, Chinese production will grow only 5 percent, with 2014 output just one third that of the US, the EIA predicts.
China has worked assiduously to avoid involvement in Iraq’s politics; it invested both in the era of Saddam Hussein and the period since he was overthrown. It sees Iraq as one of the countries with the biggest potential to increase oil output.
The International Energy Agency (IEA) predicts that Iraqi production will reach eight million barrels of oil a day by 2035, up from three million now. Of that production, 80 percent will go to China.
“Baghdad to Beijing is the new Silk Road of the global oil – oil from Baghdad and capital investment from Beijing,” said IEA chief economist Fatih Birol.
The writer is a Hong Kong-based journalist and author.
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