Iran War: A New Chapter in the U.S.-China Contest for Oil and Minerals in Iraq

China has long dominated Iraq’s oil-production sector, but the Iran war and an internal corruption purge may be shifting the field in favor of the United States. Photo courtesy of China Daily.

 

A corruption purge in the Iraqi government, combined with the Iran war and the presence of pro-Iran militias in Iraq, has altered the landscape of U.S.-China competition for oil and minerals.

New Iraqi Prime Minister Ali al-Zaidi, who took office on May 16, 2026, has launched the most extensive anti-corruption campaign in the country’s modern history, centered on the Oil Ministry. The Counter-Terrorism Service and other security forces raided homes across Baghdad’s Green Zone on June 28, detaining 47 people, including Deputy Oil Minister Ali Maarij al-Bahadly and Al-Azm Alliance leader Muthanna al-Samarrai.

The investigation began with the arrest of Oil Ministry Deputy Minister for Refining Affairs Adnan al-Jumaili the previous month, whose testimony and an accompanying seizure of $85 million preceded the wider sweep. Al-Zaidi has also created the Supreme Sovereign Council for Integrity, Oversight and Recovery of Public Funds and ordered a review of major deals signed by the previous government.

The Office of Foreign Assets Control (OFAC) designated al-Bahadly in May 2026, alleging that he abused his position to facilitate the diversion of Iraqi oil products to benefit Iran-affiliated smuggler Salim Ahmed Said and the Iran-backed militia Asa’ib Ahl al-Haq. The same Treasury action designated three senior leaders of Kata’ib Sayyid al-Shuhada and Asa’ib Ahl al-Haq.

Iraq’s economy has faced separate pressure since Iran’s closure of the Strait of Hormuz disrupted trade and hydrocarbon exports. The IMF projects Iraq’s GDP to contract in 2026, attributing the contraction primarily to lost oil production and exports.

Chinese firms manage roughly 34 percent of Iraq’s proven reserves and produce two-thirds to three-quarters of its roughly 4-million-barrel-a-day output. CNPC alone accounts for half of total production. Across all Chinese operators, direct holdings amount to about 24 billion barrels of reserves, with production totaling about 3 million barrels per day.

In Iraq’s most recent upstream licensing round, Chinese energy companies scooped up all but three of the blocks awarded. The only Western firm to bid, Shell, lost out, and no U.S. company participated.

The mechanism behind China’s dominance in Iraq’s oil-production sector is rooted in the Popular Mobilization Forces (PMF), an umbrella of roughly 60 to 70 brigades and approximately 230,000 personnel with an annual budget of about $3.5 billion. Its most powerful factions maintain independent command structures tied to Iran’s IRGC rather than to Baghdad. Chinese firms operating in southern Iraq have relied on PMF-linked security in areas Western companies have treated as too risky.

The PMF’s commercial arm, the Muhandis General Company, is beneficially owned by the PMF Commission and tied to U.S.-designated Kata’ib Hizballah leader Abu Fadak. In March 2024, the company signed a memorandum with China Machinery Engineering Corporation to pursue joint construction, engineering, and energy projects. OFAC added MGC to its sanctions list in October 2025 for helping Iran evade sanctions, smuggle weapons, and engage in corruption in Iraq.

Western majors are re-entering regardless. Chevron signed preliminary agreements to replace sanctioned Lukoil at West Qurna 2. The field has 14 billion barrels in reserves and produces 460,000 to 480,000 barrels per day. Chevron separately reached an agreement in principle on the Nasiriyah and Balad fields.

ExxonMobil signed a heads of agreement on the Majnoon field, one of Iraq’s “Big Four.” The agreement covers exploration, development, and export infrastructure upgrades. BP reached a final agreement to redevelop the Kirkuk fields, including the Baba and Avanah domes and three adjacent fields. TotalEnergies holds a $27 billion portfolio of oil, gas, solar, and water projects in Basra.

Minerals are where the Iran war has changed the calculus without yet producing contracts. Iraq’s prime ministerial financial advisor has placed the value of the country’s mineral wealth at more than $16 trillion. Iraq has phosphate reserves of more than 10 billion tons at Akashat in Anbar province, ranking the country second globally. Iraq also has large native sulfur deposits at Mishraq near Mosul, among the largest in the world.

Development of both resources has lagged since a productive period in the 1970s, hampered by decades of war, sanctions, and damaged infrastructure. No current U.S. or Chinese contracts target either resource directly, and the anti-corruption campaign has been concentrated entirely on the Oil Ministry.

Iran’s own mineral base adds a separate dimension. China accounted for 91 percent of global refined rare-earth output and 94 percent of sintered permanent-magnet production in 2024. That dominance has depended partly on inputs from Iran. Operation Epic Fury disrupted that supply chain at a time when reports surfaced of thin U.S. rare-earth defense inventories.

Washington’s response has moved on a parallel track. The State Department’s February 2026  Critical Minerals Ministerial drew 54 countries and produced a dozen new bilateral frameworks, though none specifically targeted Iraq. Active U.S. mineral deals remain concentrated in the DRC, Mexico, and South America.

The purge and the war connect through a single dynamic. Corruption inside Iraq’s Oil Ministry financed Iran-backed militias that, in turn, provided the security architecture underpinning China’s oil-sector dominance. Al-Zaidi’s campaign, conducted under sustained U.S. pressure on Iraq’s dollar-denominated oil revenue, is disrupting that financial conduit.

China’s underlying production position, however, is anchored in long-term technical service contracts on fields already in operation. These contracts are far harder to unwind than a single construction award tied to an official now under arrest. The distinction matters for how far the purge can reach. It can strip China of preferential access to new contracts and infrastructure deals of the kind the Muhandis General Company has pursued, but it does not by itself affect CNPC’s existing operatorship of fields such as Rumaila, Halfaya, or West Qurna 1.

The purge’s durability depends on whether it expands beyond individual officials to challenge the Coordination Framework’s continued control of the Oil and Finance Ministries. Otherwise, it may stop with the officials already detained while the underlying patronage network regenerates around new personnel, a pattern seen in prior Iraqi anti-corruption drives.

A third possibility is that oil-sector corruption is curtailed while the PMF’s military and political position remains intact. In that case, the security arrangement underpinning Chinese operations in Basra and Dhi Qar would continue even as the financial conduit through the purge’s targets shrinks.

The return of Chevron, ExxonMobil, BP, and TotalEnergies is proceeding in parallel with the purge rather than as a result of it. Their return is tied to separate developments, including Lukoil’s sanctions-driven exit and direct U.S.-Iraq energy negotiations.

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