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Good News For The Dinar – China Is Buying Half Of Iraq’s Oil & Wants Even More
U.S. taxpayers have carried nearly all the burden of the Iraqi conflict since even before 2003, and during the Gulf War the implicit “prize” for the U.S. was to have been access to Iraq’s huge oil resources. Yet, it has now become apparent that China has been the main purchaser of the surge in Iraq’s oil exports in recent years.
And, China is investing heavily in Iraq’s oil sector, with numerous in-country oil exploration and development ventures.
The predominance of China in Iraq’s oil industry is good news for the value of the Dinar and its investors, since oil-poor China’s eagerness for long-term petroleum sources means a steady flow of Chinese Yuan to buy Iraqi Dinar as required for an increasing number of oil-sales contracts.
The U.S. fought in Iraq, and China won
Currently, China is buying 1.5 million barrels of oil per day from Iraq, about half its entire production, and is working behind the scenes to make deals for even larger amounts. For example, China is bidding for ownership of ExxonMobil’s stake in Iraq’s biggest oilfield.
Now several years after the cessation of major hostilities, Iraq’s oil industry is booming, and monthly oil exports are rising steadily. Some Americans grouse about the fact that huge amounts of our country’s blood and money have been spent to build democracy in Iraq, while the Chinese stayed home and did nothing.
And, many people believe that Iraqi oil should be flowing exclusively to U.S.-controlled companies so that we can begin to recover the enormous costs of our Iraqi interventions.
Certainly, our military and administrative involvement in Iraqi affairs hasn’t paid for itself, as former Secretary of Defense Donald Rumsfeld and his staff had suggested it would, prior to our intervention.
The broader view
Still, the growing Chinese dominance of the Iraqi oil industry is certainly good news for Dinar investors, and probably for the overall U.S. economy as well. That’s because global energy production isn’t a zero-sum game. Simply because China is more active in Iraq than the U.S. isn’t necessarily bad for the U.S. economy.
On the contrary, savvy Dinar investors should be pleased that China is meeting a need in the Iraqi marketplace, which U.S. companies haven’t addressed, for a variety of reasons. In fact, there are several important reasons why American investors should be smiling about China’s presence in Iraq. Here’s why:
China is overpaying because it’s desperate for oil
One of the main reasons that Chinese oil companies are better-established in Iraq than American or British oil firms is because the Iraqi Oil Ministry’s drilling guidelines are stricter than those of most other oil-producing nations.
Since it costs a bit more to drill for oil in Iraq than elsewhere, companies based in free-market nations such as the U.S. and Britain have found it more cost-effective to focus on large-scale oilfield development in countries other than Iraq.
To be sure, the petroleum industry in Iraq is being developed very rapidly, yet this development costs slightly more than it does in most other countries worldwide. That means U.S. and British oil companies have preferred to drill for oil in neighboring countries with lower costs.
In contrast, China isn’t a democracy and Chinese industries aren’t beholden to profit motives. Instead, Chinese government policies are oriented toward ensuring an adequate supply of imported energy for their heavily-industrialized yet energy-poor nation.
Frankly, China’s leaders are so desperate for energy that they’re willing to pay a bit more than their Western counterparts. Subsidized by government aid, Chinese companies are drilling for oil and building infrastructure in Iraq at a cost that U.S. and British companies find unpalatable.
Meanwhile, the leaner, more-profitable U.S., British and European oil companies are saving their money by drilling and producing larger quantities outside Iraq, while still maintaining a strong “footprint” inside the country.
The Chinese oil companies’ focus on Iraq has the effect of reducing Chinese competition in other, lower-cost oil-producing countries. So, that means U.S. companies face less competition for buying or developing oil production in other, cheaper-producing countries.
Nobody seems to mind the fact that China is willing to spend more money, and the Iraqi treasury is certainly benefiting from Chinese oilfield spending.
So, that’s good news for Dinar investors – Oil revenues accumulate faster in the vaults of the Central Bank of Iraq (CBI), thus providing stronger backing for the IQD, so China is indirectly helping American investors.
China is footing the bill for infrastructure development
While exploring and drilling for oil throughout remote regions of Iraq, Chinese companies are obligated to build not only pipelines, refineries and storage tanks, but also roads, electricity and water utility services, and other permanent infrastructure simply to have the opportunity to do business in primitive areas.
The main reason why the Gulf War didn’t “pay for itself” quickly is that, in the period leading up to the ouster of Saddam Hussein, the country was burdened by UN sanctions which crippled the Iraqi oil industry. To restart that industry has required a huge investment, and China is paying the bill.
China’s investments in Iraq are massive, possibly as much as $30 billion per year. Dinar investors worldwide should be very pleased, since the huge inflows of Chinese Yuan to pay for permanent infrastructure create lasting value as well as supporting the value of the Iraqi currency.
Reduces Chinese reliance on Iran
As China buys more oil from Iraq, and focuses its infrastructure-building investments there, it is becoming less dependent on Iranian oil. This should tend to ease geopolitical tensions and reduce polarization in the region somewhat, since it means that China will no longer be committed to siding with Iran in its longstanding confrontation with the U.S.
Frankly, the friendlier that China becomes with Iraq, the less committed it will be in Iran. This is good news for Dinar investors, because it means that Chinese resources formerly dedicated to building an “enemy” nation such as Iran are now being diverted into strengthening Iraq, its U.S.-friendly neighbor.
Roll out the welcome mat
In summary, even though China is perceived by many U.S. politicians as an adversary to our commercial interests for a variety of reasons, still, at least with regard to Iraq it seems evident that China’s activities in Iraq are truly a blessing for Dinar investors.
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