Turmoil could thwart China's Middle-Eastern strategy

China is investing billions of dollars in Iraq and Iran not only to secure its oil supply, but also to make it the major player in Middle Eastern trade. But the region's tumult could scuttle its Silk Road dream.

China’s stake in the Middle Eastern turmoil is staggering as it seeks to restore a 21st-century version of the Silk Road. 

Two decades ago, the US was dependent on the Middle East. Now there is much less US dependence, hence America's changing role. Now it is China that needs the Middle East, and the planned Chinese role in the troubled region goes way beyond simply oil.

 The US fought the Iraq war and led the drive for sanctions against Iran. But it is the Chinese who plan to capitalise on the fall-out from the American strategies. China won the peace -- at least until now.

China is investing billions in both Iraq and Iran not only to secure China’s need for more oil but also to make China the major player in Middle Eastern trade. Fortunately most of the Chinese investment in Iraq is in the south, which has so far has escaped the fighting.

The biggest single Chinese investment is in the remarkable Rumaila oil field in southern Iraq. Rumaila is a 50-mile-long deposit of sweet crude with estimated reserves of 16 billion barrels.

The Chinese believe it will be the second largest oil deposit in the world. Saudi Arabia’s Ghawar field is the largest. China National Petroleum Corporation has a 37 per cent stake in the field and BP has 38 per cent. Iraq interests hold the remainder. 

The BP and CNPC investment requires a rapid increase in production. CNPC is looking for output from Rumaila to be lifted from 1.06 million barrels a day to 2.85 million in seven years. Such a rapid increase in production of a field as large as Rumaila is without precedent, but it’s just the start of the Chinese plan to develop Iraq into a rival of Saudi Arabia and, with Iran, to become the second largest oil producer in the world.   

CNPC is actually operating four projects in the southern part of Iraq and is the single biggest foreign investor in Iraq, which is already China’s fifth-largest overseas oil supplier. China has now surpassed the US as the world’s largest oil importer as a result of the big rise in US oil production and virtually stagnant Chinese oil output. 

China’s proposed support of Iran is no less ambitious. Earlier this year, the President of Iran, Hassan Rouhani, met with Chinese President Xi Jinping. They discussed a remarkable project to construct a rail link from the Chabahar port in southeastern Iran to Pakistan, Afghanistan, Kyrgyzstan and China.

The Chinese will also be key financiers of the proposed Khoda-Afarin Dam in Iran, which aims to control the floods of Aras River and irrigate 62,000 hectares of agricultural lands. China is also looking to invest in the steel industry in Iran.

For China’s grand Silk Road plan to work, the area needs stability. That now looks unlikely.

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