China pushes for bigger role in Iraqi reconstruction

China will directly invest in infrastructure assets associated with Iraq’s oil industry as the partnership between the two countries evolves. Above, an oil field in Basra. (Reuters)
Updated 02 March 2018

China pushes for bigger role in Iraqi reconstruction

LONDON: China is ramping up its role in Iraqi reconstruction, reflecting its growing reliance on oil from the war-ravaged country, but geopolitical factors are also at play, according to a new report.
A paper compiled by consultancy BMI Research, and released first to Arab News, said: “On the one hand, China will look to direct investment into infrastructure assets associated with Iraq’s oil industry, which has emerged as an increasingly important export partner over the past decade. On the other, China will aim to garner geopolitical influence by participating in broader reconstruction efforts in a country lying along a key artery of its Belt and Road initiative.”
The burgeoning Iraq-China partnership was said to be anchored by a dramatic increase in oil trade. Iraqi oil exports to China rose from zero in 2007 to 270 million barrels annually by 2017, second behind only Saudi Arabia in the Middle East and accounting for roughly 8.8 percent of total Chinese oil imports.
China’s growing investment role in Iraq’s oil sector was highlighted in January when Iraq disclosed that it intended to construct an oil refinery at the port of Fao on the Gulf with two Chinese companies. Iraq’s ministry of oil named the firms as Power China and Nerco Chinese. The ministry said that the refinery would have a capacity of 300,000 barrels per day. Similarly, Baghdad has awarded a contract to China-based Zhenhua Oil to further develop the East Baghdad oilfield.
“Given the growing importance of China as an oil export market vis-a-vis traditional export destinations like the United States, Baghdad will remain keen on deepening partnerships with Chinese companies as bilateral interests align,” BMI said.
The geopolitical research consultancy added that China would also gain indirect exposure to Iraq’s infrastructure sector by extending bilateral loans aimed at rebuilding Iraq’s economy.
In February, international donors pledged $30 billion to reconstruction efforts in Iraq, and while individual country contributions have not been divulged, reports indicated that China had been a key donor with billions committed by Chinese state-controlled enterprises over recent years.
BMI said China’s motives were also driven by its wider geopolitical ambitions. “Iraq lies along a key route of the China-backed Belt and Road initiative, which seeks to foster growing East-West overland trade by promoting greater logistical connectivity.”
BMI also highlighted the planned Basra-Aqaba oil pipeline, where the China Petroleum Pipeline Bureau is slated to play a construction role.
Yu Jie, head of China Foresight at the London School of Economics, told Arab News that “China is the world’s biggest importer of oil and the Middle East is a region for market access.” She flagged media reports that Chinese state-owned oil company Sinopec could acquire a shareholding in Saudi Aramco following the planned IPO later this year.
A recent report by the International Energy Agency said that the Middle East, which accounts for about $200 billion worth of trade, makes the region China’s fourth largest trading partner after the US, Japan and South Korea.
That said, getting the funds needed to rebuild Iraq is no easy task. At the close of an international donor conference in Kuwait last month, Iraq secured only about a third of the $100 billion that Iraq said the country needed, and much of the money pledged was in the form of investment loans (not direct aid).
Last month, the Iraqi Ministry of Defense released a video depicting Chinese-made CH-4B armed drones for use against terrorist targets. That appeared to make good on a statement following a visit by the Iraqi prime minister to Beijing two years ago when the Chinese pledged to expand its military and defense cooperation with Iraq. “We are ready to respond to support Iraq in these areas, as well as economic cooperation,” said Chinese President Xi Jinping at the time.
In an article last month on the website of China Global Television Network, professor Zhou Rong from the Chongyang Institute for Financial Studies at Renmin University of China, wrote that Chinese state-owned enterprises are the biggest oil investors in Iraq, “especially the modernization and development of Iraq’s oil infrastructure.”
About 60 percent of the electricity in the Iraqi capital Baghdad is produced by Chinese companies, he said.
“Sino-Iraqi relations benefit from the backdrop of the Belt and Road Initiative. Iraq thinks that the initiative is important for Iraq because it is historically located on the Al-Hareer Road,” Rong said.
Al-Hareer was a 12,000 kilometer land and sea road linking Asia, the Middle East and Europe hundreds of years ago that facilitated the exchange of goods and products such as silk, perfumes, incense, and spices, he said.


Aramco profits fall in tough quarter, but sees partial recovery from COVID-19 impact

Updated 09 August 2020

Aramco profits fall in tough quarter, but sees partial recovery from COVID-19 impact

  • Aramco see’s “partial recovery” from pandemic impact
  • Aramco president says company remains resilient

DUBAI: Saudi Aramco, the world’s biggest oil company, reported a net income of $6.57bn for the second quarter of 2020, the period which witnessed the most volatile oil market conditions for many decades.

The result, announced to the Tadawul stock exchange in Riyadh where the shares are listed, compared with income of $24.7 bn last year.

Amin Nasser, president and chief executive, said: “Despite COVID-19 bringing the world to a standstill, Aramco kept going. We have proven our financial resilience and operational reliability, setting a record in our business operations, while at the same time taking steps to ensure the health and safety of our people.”

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Aramco’s dividend - a big attraction for the investors who bought into the world’s biggest initial public offering last year - will remain as pledged, Nasser added. Cash flow in the quarter amounted to $6.106 bn.

““Strong headwinds from reduced demand and lower oil prices are reflected in our second quarter results. Yet we delivered solid earnings because of our low production costs, unique scale, agile workforce, and unrivalled financial and operational strength. This helped us deliver on our plan to maintain a second quarter dividend of $18.75 billion to be paid in the third quarter,” he said.

Aramco said the loss was “mainly reflecting the impact of lower crude oil prices and declining refining and chemicals margins, partly offset by a decrease in production royalties resulting from lower crude oil prices and a decrease in the royalty rate from 20 per cent to 15 per cent, lower income taxes and zakat as a result of lower earnings, and higher other income related to sales for gas products.”

Sales and revenue in the period - which saw oil prices collapse on “Black Monday” in April - fell 57 per cent to $32.861 bn from the comparable period last year. 

Nasser said he was cautiously optimistic that the world economy was slowly recovering from the depths of the pandemic lockdowns.

“We are seeing a partial recovery in the energy market as countries around the world take steps to ease restrictions and reboot their economies. Meanwhile, we continue to place people’s safety first and have adapted to the new normal, implementing wide-ranging precautions to limit the spread of COVID-19 wherever we operate.

“We are determined to emerge from the pandemic stronger and will continue making progress on our long-term strategic journey, through ongoing investments in our business – which has one of the lowest upstream carbon footprints in the world,” he added.

Aramco expects capital expenditure to be at the lower end of the $25bn to $30bn range it has already indicated for this year.