Protecting Chinese oil: A new breed of private security company expands in Iraq

Most of the 5,000 Chinese private security companies cannot operate in highly volatile areas and the ones in Iraq are exceptions.
Sunday 05/08/2018
An aerial view of an oil drilling rig at the al-Ahdab oil field in the Iraqi Wasit province. (Reuters)
Good prospects and many challenges. An aerial view of an oil drilling rig at the al-Ahdab oil field in the Iraqi Wasit province. (Reuters)

Over the last 15 years, conflicts and the threat of terrorism have provided fertile ground for the proliferation of a new breed of international private military and security company. The growth of the Chinese private security market far exceeds the shrinking budgets of industrialised Western countries and corporations active in the private security sector.

The experience in threat assessment and risk management in Iraq by the Chinese in the oil and gas sector is an interesting benchmark for the growth in China’s private security companies. China National Petroleum Corporation (CNPC) is one of the state-owned enterprises that spearheaded Beijing’s presence in the post-war Iraqi oil industry.

CNPC’s status as one of the largest foreign companies in the area increased the necessity for operational compliance and risk management to a level not reached by other Chinese state-owned enterprises that are exploring foreign investments along the Belt and Road Initiative.

In Iraq, the export of crude oil to China amounted to 8.5% of Chinese imports in 2017, with a value of $13.8 billion. Since the beginning of 2018, the Iraqi crude supply plugged the gap generated by Saudi Arabia’s planned output reduction. This move increased Baghdad’s strategic importance in Beijing.

The Chinese oilfield concessions in Iraq are mostly in the safer southern part of the country. Recent aggressive bidding by Chinese state-owned enterprises has won awards from the Iraqi Ministry of Oil for four development projects as well as for two of seven exploration blocks in the less safe north-east, which offers good prospects for oil and gas exploitation but also calls for sophisticated risk prevention and crisis management.

The territorial losses suffered by the Islamic State in Iraq have contributed to an overall stabilisation but the energy assets may still be a target due to the strategic importance of Iraqi state revenues. In addition, oil sector employees face a significant threat of kidnapping from politically motivated organisations and criminals.

Most of the 5,000 Chinese private security companies cannot operate in highly volatile areas and the ones in Iraq are exceptions. The Chinese private security sector is anchored to a culture of cutting costs and improving profitability by focusing only on the lowest price.

To resolve this, the corporate culture of high-level service provision must substitute the approach that tends to favour the lowest bidder. While the private security sector in China provides a limited range of services, the Iraqi situation demonstrates that the need for professionalisation is urgent and that Beijing’s “banking diplomacy” and non-intervention principle is not always the most viable solution.

The Iraqi government’s requirements for licences and regulatory compliance, as well as the internal regulations of Chinese state-owned enterprises in the energy sector, have forced the private security companies to develop higher professional capabilities compared to the private security companies employed in other regions.

The Chinese private security company presence in southern Iraq is more in line with passive stance of other such international firms in the area: to protect the oilfields or, in the case of a crisis, to evacuate Chinese personnel. Chinese private security companies such as Ding Tai An Yuan cooperate with armed Iraqi ones to protect personnel and infrastructure. Other Chinese companies prefer to add a layer of security by employing foreign groups that can provide local and international security contractors.

The new hydrocarbon extraction areas in north-eastern Iraq, while offering good prospects for return on investment, present significant challenges. China’s energy relations with the Middle East are poised to increase significantly and the new Chinese national guidelines for public private partnership are going to increase the number of international partners that will share Beijing’s risk profile.

From the boots-on-the-ground perspective, the services related to the provision of human security and infrastructure protection are going to witness an increase in capabilities, risk management and mitigation. In addition, the introduction of new standards with unmanned aerial vehicles and tethered blimps for scouting is under way.

The “Iraq Model” best practices model among the Chinese private security companies is an important benchmark for the entire Chinese private security sector. If successful, this model could be duplicated along the Belt and Road Initiative’s high-risk areas.