China’s Pursuit of Iraqi Rail Projects Reinforces Interest in Strategic “Dry Canal” Across Country

Late last week, reports emerged that the General Company for Iraqi Railways (GCIR) was in discussions with state-owned China Railway Construction Corporation (CRCC) regarding investment in Iraq’s expansive Dry Canal project, a broad initiative to rehabilitate the country’s rail and other transit infrastructure in a manner that would transform Iraq into a critical transit link for Asian and European trade.  The two sides discussed two specific components of the Dry Canal project: the Basra-Turkey and Basra-Al Faw railway projects.  These discussions were held just days after an independent announcement by GCIR that it intends to offer large rail projects to investors and that it is cooperating with a “Chinese government company in this respect.“

Separately, China has also shown considerable interest recently in Iraq’s impending development of Al-Faw port, another component of the Dry Canal project.  In December 2020, the Chinese embassy vehemently opposed the rejection of a Chinese contender, China Machinery Engineering Corporation, to implement the first three phases of the port expansion project, which was awarded to a South Korean contractor.  The objections led Iraqi officials to indicate that Chinese contractors could be considered for other sections of the port project.  Subsequently, in January 2022, the Iraqi Ministry of Transport directed the government to prepare an internal feasibility study on Al-Faw port’s capacity to handle Chinese goods intended for European markets.

Expansion of the Al-Faw port is intended to ease Iraq’s current reliance on the country’s Gulf port of Umm Qar, presently Iraq’s largest port of trade.  Iraqi officials envisage Al-Faw serving as an alternative trade route to Europe.  Rather than passing through the Suez Canal, goods would be transported by rail and land networks in Iraq and Turkey.  The Basra-Al Faw and Basra-Turkeu railway projects would seemingly be a part of this trade network.

These discussions arrive in the context of notably increased Chinese economic influence in Iraq.  At the start of this year, Iraq’s State Organization for Marketing Oil (SOMOselected China’s ZhenHua Oil Company over European contenders for a $2 billion oil supply deal in which Iraq will supply approximately 130,000 barrels a day of crude to the Chinese company over five years while receiving payment for one year’s supply upfront.  The prepayment deal is effectively using oil as collateral for a loan.  Later in January, a Chinese consortium led by Zhenhua (and including PowerChina Corporation and China Nuclear Engineering and Construction) was selected to develop an oil refinery in Iraq’s southern Dhi Qar Governorate.  ZhenHua Oil Co. is a subsidiary of China’s largest defense contractor, NORINCO.