China – Iraq Issue Heats Up As Baghdad Is Caught Between East And West

Baghdad Protests

Pro Silk Road / Anti US Protests Flare Up In Baghdad 

Confusion has arisen over errant reports from Reuters, and subsequently repeated extensively elsewhere, over the extent of Chinese funding of Iraqi infrastructure as part of Beijing’s 2021 Belt and Road Initiative outbound investment. Reuters claimed that Iraq had been the largest recipient of BRI funding, to the tune of some US$10.5 billion. As our sister facility, Asia Investment Research pointed out yesterday, no such investments were in fact made.

The error becomes further compounded as the current government of Iraq is taking the position that the country is not actually a member of China’s Belt and Road Initiative. However, Baghdad did sign off a Belt and Road MoU in December 2015, under then Prime Minister Haidar Al-Abadi. He also signed off he signed a memorandum of understanding for comprehensive “Strategic Partnership” with China, similar to the one Iran signed last year.

The current position is that China does not wish to comment or get involved in the Reuters report, and especially as the UK and US both retain a large degree of interests in Iraq, to the extent that US officials has expressly warned the Iraqi Government against engaging with China and the BRI.

The Iraqi government has instead been selling Iraq’s wealth to British, French, American,  Saudi and other Gulf interests, and is following IMF and World Bank instructions to devalue the currency, paying off foreign debt rather than rebuilding much needed infrastructure – the polar opposite to the role China typically takes, which would be to build infrastructure in exchange for Iraqi oil.

That option came to a halt following a so-called ‘color revolution’ which overthrew Iraqi PM Adel Abdulmahdi as soon as he came back from Beijing on September 29, 2019 where he had signed the final articles of the “oil for reconstruction” deal. That is now in abeyance.

The Iraqi caretaker government and media currently take the position that there are no agreements with China to honor, that Iraq is not part of the BRI, and that China is not interested in Iraq. That is supported by western-backed media who repeat statements about debt-traps, loosing sovereignty and strategic assets to China, and China taking control of Iraqi oil. One can appreciate Beijing’s dilemma.

This has however resulted in a division amongst Iraqi politicians and businessmen, some of whom favor the US route and others the China option. To this end, peaceful demonstrations have been taking place in Baghdad, with pro-Belt and Road Initiative factions holding rallies and protesting against ‘American Imperialism’ although a planned ‘Million Man March’ on March 1st may move to a more direct level of protest. Needless to say, Western media hasn’t been covering these protests.

China is to a great extent dependent on oil and gas coming from the Gulf, and considers Saudi Arabia, UAE, Kuwait (and Iran) as more reliable partners than the current Iraq leadership. Accordingly, China does not want to rock the boat – and neither did it fund US$10.5 billion in infrastructure to Iraq.

Reuters have been caught to some extent with their hand in the cookie jar as concerns spreading fake news, ultimately to be used to stoke up fears of a Chinese takeover of national assets and the specter of debt traps. But the real facts are simple: China didn’t invest.

The next test of the Iraqi divide between the West and East as concerns Iraq will come next month – as protests build and tempers start to rise. Watch this space.

With thanks to Hussein Askary of the BRIX Institute for his assistance and contributions to this article.  

 Asia Investment Research provide unique China and Asia Investment data and have been instrumental in uncovering this story. Their new Q4 Asian Inbound Investment report can be reserved here.

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