Graduate School of Social Sciences China’s Energy Supply Security from Iraq: The case of CNPC in Rumaila Master Thesis Political Science: Political Economy Research Project: The political economy of energy 2017-2018 June 29 th 2018, Amsterdam Author: Bart J. Oudijn Supervisor: Dr. M.P. Amineh 11782536 Second Reader: Dr. R.J. Pistorius 1 Table of Contents Acknowledgements 3 Maps 4 List of abbreviations 7 List of Tables and Figures 9 Abstract 10 Chapter 1: Research Design 11 1.1 Overview of research 11 1.2 Literature review 13 1.3 Theoretical and conceptual framework 18 1.4 Brief Argumentation and hypotheses 24 1.5 Research method 25 1.6 Structure of the thesis 26 Chapter 2: The Chinese State and Energy in China 27 2.1 Introduction 27 2.2 China’s energy situation and energy outlook 27 2.3 China’s energy-institutions, -policy and -supply security 31 2.4 China’s National Oil Companies 38 2.5 Concluding remarks 41 Chapter 3: Energy resources and energy policy in Iraq 43 3.1 Introduction 43 3.2 State-market relations in Iraq 43 3.3 Energy situation, energy outlook and energy policy 49 3.4 Concluding remarks 57 Chapter 4: China’s energy relations with Iraq 58 4.1 Introduction 58 4.2 China – Iraq relationship: China’s comprehensive approach 58 4.3 Chinese – Iraqi trade, investment and finance relations 65 4.4 Concluding remarks 71 Chapter 5: Risks and Challenges for the Chinese energy supply security from Iraq 72 5.1 Introduction 72 5.2 Domestic risks and challenges 73 5.3 The nature of post-Cold war geopolitics in the Middle East 81 5.4 China’s geopolitical economy in the Middle East 84 5.5 Geopolitical economic actors in the Middle East 86 5.6 Concluding remarks 94 Chapter 6: Conclusion 95 Bibliography: 100 Appendix I: Informal Chain of Command Popular Mobilisation Forces 110 2 Acknowledgements When I started my master political science with the specialisation Political Economy in Amsterdam in September of 2017, my main interest was in hard (military) power. In my bachelor at Leiden University, I took a course on geopolitics and began to understand the link between hard power and geopolitical- and geo-economic interests. Due to the good experience I had in my bachelor, I signed up for the elective Energy and geopolitical economy in Eurasia, taught by mr. M.P. Amineh (Mehdi) in the first semester of my master. During this course, Mehdi invited me to join his research project the political economy of energy. Over the course of the elective, the subject fascinated me more and more and I became determined to write my thesis in Mehdi’s research project. In this research project, I focus on the geopolitical economy of Iraq and China and their energy relation. This thesis is the result of six months hard work, nights of reading, and extensive research. I have tried to produce a comprehensive and inclusive report on the most important determinants for China-Iraq energy relation. Although there is always room for more analysis, this thesis has provided me, and hopefully my readers, with a good basic knowledge about this interesting topic. With regard to the process of writing this thesis, I would like to express my sincere gratitude to several people whose help was indispensable in the writing process. First and foremost, I would like to thank Mehdi. His dedication to geopolitical economy and science is admirable and was an inspiration throughout this thesis. His continuous support, extensive knowledge and firm but constructive critics were of tremendous help. Secondly, I would like to thank the interviewees for their essential input. Thanks to their selfless cooperation, they have provided key insights for this thesis. My special gratitude go out to two persons. First of all, I would like to thank Niek Ong, a fellow student with whom I have had numerous discussions, brainstorm sessions, and deliberations about our theses. Secondly, my gratitude goes out to Suzanne van Oosterum for her hours of work in editing and her critical notes. Finally, I would like to thank my friends and family, who missed me out when I was working on my thesis, but kept supporting me. Bart Oudijn, 22 June 2018 3 Map 1 --- China Source: CIA Factbook (2018) 4 Map 2 --- IraqIraqIraq Source: CIA Factbook (2018) 5 Map 3 --- The Middle East Source: CIA Factbook (2018) 6 List of abbreviations b/d Barrel of oil per Day BP British Petroleum CCP Chinese Communist Party CIA Central Intelligence Agency CNOOC Chinese National Overseas Oil Company CNPC Chinese National Petroleum Company EEAS European External Action Service EIA Energy Information Administration EIU Economist Intelligence Unit EU European Union FDI Foreign Direct Investment GDP Gross Domestic Product IEA International Energy Agency IMF International Monetary Fund INOC Iraqi National Oil Company IOC International Oil Company IR International Relations IS Islamic State Mb/d Million barrels of oil per day MoO Ministry of Oil (Iraq) Mtoe Millions of Tonnes of Oil Equivalent NATO North Atlantic Treaty Organisation NDRC National Development and Reform Commission (China) NEA National Energy Administration (China) 7 NOC National Oil Company NPC National People’s Congress (China) OBOR One Belt One Road OECD Organisation for Economic Co-operation and Development RCREEE Regional Centre for Renewable Energy and Energy Efficiency RMB Renminbi SCO Shanghai Cooperation Organisation SEC State Energy Commission (China) Sinopec China Petroleum & Chemical Corporation SOE State Owned Enterprise SOMO State Organisation for Marketing of Oil (Iraq) TSC Technical Service Contract UAE United Arab Emirates UK United Kingdom UN United Nations UNDP United Nations Development Programme U.S. United States (of America) USD United States Dollar WTO World Trade Organisation 8 List of Tables and Figures Tables: 2.1 China's forecasted energy mix in mtoe (2000-2040) 31 3.1 Proven oil -reserves and -production in the Middle East 49 3.2 Iraqi oil production, consumption and exports in mb/d (2006-2016) 50 3.3 Iraqi oil revenue as share of export and governmental revenue (2006-2016) 52 3.4 Characteristics of different types of oil contracts 54 3.5 Licensing rounds in Iraq 56 4.1 Key numbers of the Chinese NOCs in Iraq 61 4.2 Key numbers of the Rumaila TSC (2009) 63 4.3 The value of Iraqi – Chinese trade in million USD (2006- 2016) 66 5.1 Classification of domestic and geopolitical economic risks and challenges 73 5.2 Annual development of Iraq on the Democracy Index (2006 – 2017) 74 5.3 Dependency on oil and gas revenue for the Middle Easter economies (2016) 82 5.4 The fragility index score of countries in the Iraqi region (2016) 83 5.5 Qualified foreign oil companies in Iraq 93 Figures: 1.1 Conceptual model of geopolitical economy 21 2.1 China’s energy mix compared to the rest of the World (2000-2040) 28 2.2 China’s sectoral energy mix in millions of tonnes of oil equivalent 29 2.3 Origin of China’s oil imports (2014) 30 2.4 Structure of China’s energy institutions 33 3.1 Interaction in Iraqi system, example Baghdad province 45 3.2 Iraqi institutional framework regarding the Iraqi energy governance 46 3.3 The Iraqi oil production and destinations in mtoe (2012) 50 3.4 Sectoral energy consumption and energy mix in Iraq in mtoe (2011) 51 4.1 Composition of Chinese export to Iraq by value in USD (2016) 67 4.2 Chinese investment in Iraq per year (2007 – 2017) 69 5.1 Iraqi governmental revenue and international oil price in USD (2008-2017) 78 9 Abstract This thesis aims at providing a comprehensive and inclusive analysis on the development of the energy relation between China and Iraq between 2003 and 2018. The current academic literature on the (energy) relation between China and Iraq is underdeveloped. Moreover, due to the developments in Iraq and the region in the past years, most literature is outdated. From a geopolitical economic point of view, a new perspective within critical geopolitics, the crucial factors for the energy relationship are analysed, making a contribution to fill this gap. The starting point of these activities is the assumption that in order to maintain economic growth, China increasingly has to rely on imported energy resources. The activities of CNPC in Iraq in general, and in the Rumaila field in particular, are taken as a case study. In this regard, this thesis explains Chinese activities beyond their geographical borders and the geopolitical and geo-economic relevance of these activities in the international sphere. In this thesis, it will be argued that China’s comprehensive approach to secure resources abroad is exemplified in the Iraqi case. Moreover, the activities of CNPC in Iraq played a key role in improving the Chinese-Iraqi energy relation, allowing Iraq to contribute to China’s energy supply security. Finally, this thesis finds that, despite the war against IS and instability in the region, the energy relation between China and Iraq remained strong. Keywords: China, Iraq, Energy relations, Geopolitical economy, CNPC 10 CCChapterChapter 1: Research Design 1.11.11.1 Overview of the Research Introduction In the last couple of decades, China transformed from a regional actor with relatively little economic and political power, into the world’s second-largest economy. In order to fuel this transition from an economy focused on agriculture to an increasingly developing industrialised country, China’s energy consumption has skyrocketed in the last few decades. With limited domestic resources, China increasingly relies on the import of energy in order to supply its energy demand. Therefore, the Chinese government implements a large variety of energy policies, in order to increase the country’s energy supply security.