Shortly before its resignation at the end of November 2019 amid wide protest movement, the government of former Iraqi Prime Minister Adel Abdul Mahdi signed a framework agreement for economic cooperation with China that envisages the financing of major infrastructure projects from Iraqi oil exported to China. The agreement stirred a political, economic and even popular debate triggered by the government's failure to present the deal to the parliament and keeping some of its clauses untold.
This paper sheds light on the context of the agreement, reviews some of its known clauses, addresses political positions thereon, and discusses claims that the deal actually serves Iran.
The Agreement: Political Context
The signing of the Iraqi-Chinese agreement on September 23, 2019 in the Chinese capital, Beijing, came at a time when Iraq was sinking in a wide protest movement demanding political reform, stronger crackdown on corruption and ending the chaos of arms. This agreement sparked a dispute between the government and the main political groups in the country. Soon thereafter, the debate moved to business and popular circles, which were divided between supporters, opponents and those casting doubts over the real purposes this deal is intended to deliver. The debate was primarily driven by the fact that the previous government did not present the agreement to the parliament and the media and withheld some of it clauses, some of which were leaked later. The issue raised significant concerns over what was considered a lack of transparency and a government desire to hide the risks arising from entering into a strategic commercial partnership with a superpower known for its dealings with corrupt political regimes around the world.
In his trip to China, the former Iraqi Prime Minister, Adel Abdul Mahdi, led a senior delegation comprising most members of his cabinet and about 14 out of the country's 18 governors. Abdul Mahdi was keen to promote the deal as the first of his plans to revitalize the Iraqi economy. Also, the government ensured that the agreement becomes a primary focus of the media by suggesting that the deal will create investments in excess of $500 billion. In fact, this amount exceeds all the investment expenditures that successive Iraqi governments have allocated for post-2003 infrastructure projects, and most of this spending was squandered by political and financial corruption networks. Needless to say, by promoting the agreement, Abdul-Mahdi was seeking to shore up his government's precarious position ahead of a series of parliamentary grilling requests threatening a number of his cabinet members. Further, Abdul-Mahdi had to deal with a by-end-of-year deadline set by the leader of the Sadrist movement to achieve tangible achievements in improving citizens living conditions, before taking out to the street and leading a protest movement to topple him and his government. Noteworthy, the agreement was originally reached by the government of former Prime Minister Haider al-Abadi, and it was formally signed by the Iraqi Deputy Minister of Finance and the Chinese Minister of Finance on May 11, 2018, without drawing the attention or objection of any of the political parties.
Constitutionally, no external economic agreement at this level shall come into effect unless it is approved by the House of Representatives, but the government of Adel Abdul Mahdi followed in the footsteps of its predecessors in circumventing this obstacle. In this regard, the government has included the projects to be implemented under the agreement in the General Budget Law of 2020, with the aim of protecting it against the usual political bargaining, and forcing parliament to pass it under the pressure of demands to launch more job openings in the public sector, pay the dues of companies, contractors, farmers, and vendors, pay off internal and external debts, which all depend on passing the general budget law.
The Agreement: What We Know
In brief, the agreement, as disclosed by Adel Abdul Mahdi’s Economic Adviser Dr. Mazhar Mohamed Saleh after the debate it triggered between political forces, the media and public opinion escalated, is a Chinese credit loan of $10 billion to be paid through depositing the revenues of 100,000 barrels of crude oil exports Iraq to China in a special account in a Chinese bank. The value of these revenues is about $2 billion a year at today's prices, estimated at $55 a barrel. The agreement has a term of 20 years. In general, the agreement is devoid of any penal provisions, and it falls within the friendship agreements. In the event of a dispute, the parties to the deal may resort to international arbitration bodies. Further, the agreement may be extended if the Iraqi side wishes to. The agreement entails several things, including:
According to the terms of this agreement, there are several accounts that undertake the process of managing the stages of the agreement, namely:
No event, as important as signing the agreement between Iraq and China, could have gone through without sparking the usual political debate. Part of the controversy is driven by the lack of information and the government's blackout over the details of the agreement. The debate is further heated by a chronic public mistrust of the political class, which neither lacks the desire nor the motives to extort the government for a share of the prospective projects. But it should be noted here the incomprehensible and rapid shift in the positions of political forces and parties between supporting and opposing the agreement and vice versa. The following is a review of the two main positions on the agreement:
1. The Opponents: Those who oppose the Iraq-China framework agreement, as we know it, say it is tantamount to mortgaging Iraqi oil to a country whose record is replete with drawing poor countries or those with corrupt regimes such as successive Iraqi governments, to what is known as the “Chinese debt trap” under the cover of cooperation agreements. They believe that such agreements ended up in some countries pledging their oil wealth to China such as Uganda, or losing the bulk of the ownership of the facilities that China helped them build. They cite Pakistan's Gwadar Port, Kenya's Mombasa Port, Sri Lanka's Hambantota Port and Djibouti's Doraleh Port as examples. These precedents raise the concerns of those who oppose the agreement for a number of considerations:
2. The Supporters: This team considers the agreement one of the most important the modern Iraqi state has signed in the second half of its age. They view it as a key lever for economic advancement and nationwide development after decades of successive wars. They back up their support for the agreement with the following:
Full Shiite Support
Sunni lawmaker and businessman Muhammad Abdullah al-Kharbit described the Iraq-China agreement as "the worst deal in history". This position is considered a reflection of the view held by the "Sunni" Iraqi Forces Coalition, led by Parliament Speaker Muhammad al-Halbousi. It is also worth noting that Chairwoman of the Parliament's Committee on Energy, Haybat al-Halbousi, and a member of the coalition, demanded the government to send a copy of the agreement to parliament in mid-January amid a rising debate over its content.
On the other hand, the Shiite political parties, especially those close to Iran, have shown great interest in the Iraq-China agreement. They have been relentless in dismissing suspicions over the agreement and calling for its total approval. In fact, Shiite political groups called for introducing the commitment to the agreement as a prerequisite for endorsing the Prime Minister-designate. This was openly expressed by leader of "Asaib Ahl al-Haq", Qais Khazali, in a tweet on January 27, 2020, which included seven conditions, the sixth of which was: "[the prime minister] must pledge to implement the Iraqi-Chinese agreement." After only one day, the Hezbollah Brigades (Kata'ib Hezbollah) announced its conditions for endorsing the new prime minister, which included the implementation of the agreement with China. These stances have further fueled suspicions that Tehran was pushing Iraq to sign the agreement for several reasons, the most important of which include:
Iraq will have to grapple with several major risks in the coming years, including a sustained record growth in the population and a continued paralysis of the productive economy. Iraq's swinging relationship with the U.S. is another major area of concern as pro-Iranian factions continue to pressure the government to expel the U.S. forces from the country disregarding President Donald Trump's threats of harsh economic sanctions. Iraq with its deep economic and financial problems provides an opportunity for China to boost its presence in the country and penetrate the Iraqi, as well as the Iranian, oil and gas sectors. Indeed, this provides China with a golden opportunity to leverage the U.S. economic sanctions imposed on Iran to obtain energy supplies at reduced prices. It will also help Beijing push towards the implementation of the penultimate section of the second northern axis of the new Silk Road, which connects western China to the Mediterranean, via a railway, making the use of trains to transport goods to Europe easier, faster and less expensive. The agreement may also enhance China's chances of gradually placing its hand on Iraqi ports, within the framework of expanding the scope of the "Madinat al-Hareer" project which it will implement in five Kuwaiti islands. The future of this last project appears to be dependent on its transformation into a link between the Maritime Silk Road and the Berlin–Baghdad railway, which makes the rehabilitation of the Iraqi railway network according to Chinese standards a top priority for Beijing's ambitions in the region.
Although China avoids presenting itself as a substitute for the U.S., in Iraq in particular, the events indicate that it is willing to fill the void that the Shiite forces are pushing for by insisting on Iraq's total disengagement with the U.S. in favor of a strategic relationship with China. It is the only logical explanation to understand the enthusiasm for linking Iraq to large and long-term lending arrangements with China, although it [Iraq] still maintains comfortable cash reserves of hard currency, and huge reserves of oil and gas, which can be used as a guarantee in more balanced and diversified agreements with world superpowers instead of falling into a potential Chinese lending trap.
The Agreement: Future Scenarios
First Scenario: Moving Forward with the Iraq-China Agreement. This scenario assumes that the Prime Minister-designate (Muhammad Tawfiq Allawi or any other PM in case Allawi fails to form a government), will implement the Iraqi-Chinese agreement in the same formula that was agreed upon with the previous government. This scenario is supported by a number of facts, the most prominent of which are:
Second Scenario: The Failure to Implement the Agreement. This scenario assumes that the current political conditions in Iraq prevent the implementation of the agreement in the manner that was planned, as a result of several considerations, most notably:
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