In recent days, Iraq's oil ministry officially invited US companies to acquire Russian oil giant Lukoil's stake in the West Qurna-2 oil field, located in Iraq’s southernmost Basra province. A halt or disruption in production there - and the resulting suspension of exports, which amount to roughly half a million barrels per day - would be very difficult and potentially disastrous for Iraq. This is especially concerning at a time when global oil prices have declined and current revenues may no longer be sufficient to cover Iraq's expenditures.
Despite having requested a one-year sanction waiver from the United States to allow the Russian oil company Lukoil to continue production at West Qurna-2, Iraq is reportedly engaging in direct talks with ExxonMobil and Chevron about acquiring the field. Lukoil currently holds a 75 percent stake and manages daily operations at West Qurna-2.
In recent months, ExxonMobil - the largest US energy firm - signed a memorandum of understanding to develop the Majnoon oilfield in Basra and is reportedly making progress in talks to acquire Lukoil's stake in West Qurna-2. If successful, ExxonMobil would become the operator of a substantial portion of Iraq's oil production in the near future.
While the Russian footprint in Iraq’s oil and gas sector appears to be waning, investment by Chinese firms in Iraq's oil and gas industry has surged. Today, a substantial portion of this critical sector - which underpins the Iraqi economy - is managed by Chinese companies. Recent estimates suggest that Beijing’s investments in Iraq total around $30 billion across various segments, including exploration, drilling and production. As a result, roughly one-half to two-thirds of Iraq's energy sector is now operated by Chinese companies.
Taken together, these developments highlight the diversification of Iraq's investment environment and the country's opening to the world's largest energy companies. However, the case of the West Qurna-2 oil field reveals a major structural weakness in Iraq's energy sector: its vulnerability to shifts in the relationships among global powers. It raises a critical question: if the US were to impose sanctions on China and its energy companies, how would Iraq continue to produce oil and finance the state, given that around 90 percent of government revenue still comes from oil exports?
West Qurna-2: Will the US make a comeback as Russia retreats?
The West Qurna‑2 oil field is one of the largest oil fields in the world. Its initial recoverable reserves are estimated at around 14 billion barrels, making it among the country’s richest geological formations. In December 2009, Lukoil was awarded the contract to develop the field, and in early 2010, it signed a service contract to begin development and production.
Commercial production from the field began on March 29, 2014. At its peak in recent years, Lukoil drilled dozens of wells - 57 in 2019 - and the field’s production capacity reached approximately 480,000 barrels per day.
While Lukoil currently holds a 75 percent interest in West Qurna‑2, the remaining 25 percent is owned by the Iraqi state‑owned North Oil Company (NOC), under the authority of the Iraqi oil ministry.
However, following the tightening of sanctions by the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) - part of broader restrictions targeting the Russian energy sector - the future of Lukoil’s operations at West Qurna‑2 has become uncertain. As a result, the Iraqi government is exploring ways either to end Lukoil’s involvement or to ensure continued production under a different operator, potentially through the sale of Lukoil’s stake to a non‑Russian entity.
In fact, sanctions have proven so effective that, less than a month after the US measures were announced, the Russian company confirmed that Iraq had suspended all cash and crude oil payments to it. Consequently, the company is likely to withdraw from the West Qurna-2 oil field, as US and British sanctions have effectively cut it off from international operations.
Current indications suggest that the Iraqi oil ministry favors awarding the project to ExxonMobil; if not, it is likely to go to another US company. ExxonMobil, which withdrew from the field in early 2024, could return after the required two-year interval. If it does, the company would ultimately account for roughly one-quarter of Iraq’s total oil production, or about 1 million barrels per day.
Another possibility is a US-Russia-Ukraine ceasefire. In that scenario, sanctions could be lifted, allowing Russian company Lukoil to resume normal operations and continue receiving wages and profits. According to Lukoil's 2021 data, the company received $709 million in cost compensation and remuneration fees while incurring $224 million in extraction expenses. In return, it was allocated 13.4 million barrels of compensation crude oil, generating $590 million in revenue (earnings before interest, taxes, depreciation, and amortization - EBITDA).
China's investment in Iraq's energy sector
According to available data, China’s total investment in Iraq’s energy, real estate, tourism, and transportation sectors reached $35.4 billion between 2007 and 2024, with over $30 billion directed specifically toward the energy sector. Chinese companies have been active in Iraq for more than two decades; however, the most significant growth has occurred in the oil and gas sector, driven primarily by China’s increasing demand for Iraqi crude oil.
For example, if annual trade between China and Iraq were to reach about US$50 billion, this would broadly reflect Chinese imports of Iraqi crude - potentially more than US$35.2 billion.
A key distinguishing feature of Chinese companies, compared with their US, European, or British counterparts in Iraq’s energy sector, is their close relationship with the Chinese state. As a result, geopolitical or diplomatic disputes involving China can directly impact Iraq’s oil and gas industry, particularly given that Chinese firms now manage a substantial portion - estimated at half to two-thirds - of Iraq’s oil and gas production.
.jpeg "Investment and operations of Chinese companies in the Iraqi energy sector, 2007-2024")
Conclusion
With West Qurna-2 facing the risk of alternating production and export shutdowns, Iraq effectively has two options to maintain roughly half a million barrels per day from the field. The first is to transfer or sell Lukoil’s stake to US companies. The second depends on a ceasefire in the Russia-Ukraine war - or the lifting of sanctions - allowing Lukoil to resume operations and contracts. Both options highlight the vulnerability of Iraq’s energy sector, which is heavily influenced by external geopolitical developments.
Looking ahead, the growing role of Chinese companies in Iraq could further complicate the situation. If the US and China fail to renew their previous agreements, and geopolitical and economic rivalries intensify, the fragility of Iraq’s energy sector will become even more pronounced. Under such circumstances, enabling Chinese firms to fill investment, production, and operational gaps would be challenging, if not impossible - despite Chinese investment in Iraq already rivaling, and in some areas exceeding, Russian involvement by a factor of up to 30.
In sum, while Iraq has sought to diversify its energy investment partners, this strategy may have inadvertently weakened the sector’s stability. In the event of renewed conflict between major global powers - particularly those providing capital and expertise - Iraq’s economy could face severe disruption.
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