China to sign huge oil deal with Iraq

China is holding talks with Iraq to sign what it describes as "massive" oil exploration contracts. The official Xinhua news agency said Peking was negotiating a 5-million-ton-a-year oil production contract with the possibility of helping Iraq set up another field with a capacity of 15 million tons.

Peking has made no secret of its wish to re-establish trade links with Baghdad if United Nations sanctions are lifted. Iraq could help meet China's growing demand for imported crude.

China was an enthusiastic backer of the "oil-for-food" deal brokered by Iraq and the United Nations in May, which would have allowed Baghdad to sell $2bn (pounds 1,200m) of oil over six months to buy food and medicine. That deal floundered when Iraq intervened in fighting between Kurdish factions last August.

The three-sentence-long report published yesterday by Xinhua gave no specific information about the negotiations between the state oil giant China National Petroleum Corporation (CNPC) and Baghdad. But last month the Middle East Economic Survey reported that Iraq and China had initialled a production-sharing deal to develop the al-Ahdab oilfield in central Iraq.

The survey said that it was the first such agreement to be initialled by the Iraqi oil authorities and represented "an important challenge to the UN sanctions regime". It is not clear whether this is the same as the negotiations referred to yesterday by Xinhua. Oil firms from Europe, Asia, and the Middle East have also held talks with Baghdad.

China, whose buoyant economy is driving up oil imports, is eager to reach an understanding with Iraq ahead of any revived "oil-for-food" deal, or an eventual dismantling of the broader economic sanctions. Last year, China imported 17 million tons of crude oil and this is forecast to rise to more than 40 million tons by the year 2000 and 100 million tons by 2010.

As one of the five permanent members of the UN Security Council, China has been a less-than-enthusiastic supporter of continued sanctions against Iraq, which were imposed in 1990 after the invasion of Kuwait.

Last August, when the "oil-for-food" deal was still on track, Chinese oil and trade officials admitted that discussions had been held with Iraq on co- operation in seismic studies and exploration and that some Chinese companies had signed draft contracts on joint exploration. CNPC officials had visited Iraq several times.

Shi Weisan, director-general of the West Asia and Africa department of the Ministry of Foreign Trade and Economic Co-operation, was quoted in an official publication as saying he had made a one-week trip to Iraq at the end of July and early August, accompanied by representatives of six Chinese companies. During that trade mission Iraq and China signed a protocol on economic and trade co-operation which provided for expansion in economic and scientific fields.

According to Mr Shi, after sanctions were lifted, Iraq was expected to need large quantities of machines, building materials and telecom equipment, and that Chinese labour was an area where the two countries to co-operate.