The last week or so has seen a flurry of major cooperation agreements – including in energy, security, and logistics – between various permutations of Iran, Iraq, Russia, and China. Like a very dark version of the old U.S. soap opera parody ‘Soap’ this real-life version is equally convoluted, albeit a lot less funny. Its key elements constitute a significant part of the new global oil market order, which is analysed in depth in my new book on the subject, but the three most recent principal cooperation agreements will have immediate consequences for oil and gas flows around the world and their pricing.
The best place to start here is at the end point of what China wants in its grand scheme of things, as delineated in its multi-generational power-grab project, ‘One Belt, One Road’. What it wants is to turn the Middle East into a large oil and gas station by which it can fuel its economic growth to overtake the U.S. as the number one superpower by 2030. The three biggest oil and gas reserves in the region belong to Iran, Iraq, and Saudi Arabia, so it wants to control those, to begin with. For Russia, which already has lots of oil and gas – over which China already has significant control – the objectives in the Middle East are more varied.
One objective is to continue to exert influence in several countries that it regards as being key to maintaining some of its hold over the Former Soviet Union states. Another, more recent one, is to use this influence to bolster its position as a partner of note to China. As for the other countries in this soap opera –Iran, Iraq, and now also more clearly, Saudi Arabia – they are in this new global alliance partly for the economic and political support from China (and to a lesser degree, Russia) and because their political systems are naturally much closer to the authoritarian regimes of China and Russia than they are to the democratic ones of the U.S. and its allies.
To the money shot, then, Iran and Iraq signed a new set of oil and gas agreements within the last two weeks. Iran has long exerted enormous influence over its neighbour directly and indirectly through its political, economic, and military proxies. Iraq was always pre-disposed to such cooperation in the energy sector, as the two countries share several of their biggest oil reservoirs. These include Azadegan (on the Iran side)/Majnoon (on the Iraq side), Azar/Badra, Yadavaran/Sinbad, Naft Shahr/Naft Khana, Dehloran/Abu Ghurab, West Paydar/Fakka and Arvand/South Abu Ghurab.
This has long proven extremely useful to Iran in avoiding sanctions, as oil from its side of these reservoirs can easily be re-branded as non-sanctioned Iraqi oil and then shipped anywhere in the world. It has also proven a useful tool for Iraq through which it can extort billions of dollars from the U.S. by promising to stop the import of Iranian electricity and gas, only to renegue on those promises the second the money hits the downtown Baghdad bank accounts. The latest cooperation agreements strengthen all these ties between Iran-Iraq further.