Charting the Silk Road to Basra: Navigating Iraq’s Legal Terrain for Belt & Road Energy and Infrastructure Projects
China Focus
Thomas CalvertPartner, Head of Corporate Commercial - Iraq, Head of China Group
Ali Al DabbaghSenior Associate,Corporate Commercial
Aro Latif OmarSenior Associate,Corporate Commercial
China’s Belt and Road Initiative (BRI) has rapidly expanded its footprint across the Middle East, with Iraq emerging as a focal point for both opportunity and complexity. Chinese national oil companies now lift more than a third of Iraq’s crude exports, while state-owned EPC giants such as PowerChina and CSCEC are delivering large-scale projects. However, beneath the surface of these high-profile ventures, BRI stakeholders are confronted with a legal and regulatory environment that is as intricate as it is dynamic.
This update draws on recent transactions to analyze the current legal framework, highlight key regulatory developments, and offer practical structuring recommendations for investors seeking to convert headline MOUs into bankable, enforceable projects in Iraq.
The breadth of Chinese engagement in Iraq is reflected in a diverse portfolio of energy and infrastructure projects, as summarised below, which are just recent public examples:
Example Project
Chinese Counterparty
Structure / Highlights
Oil-for-Projects Framework (2019–present)
Various Chinese firms
Exports of crude under a defined framework. Proceeds earmarked for infrastructure, including the 1,000 schools programme.
Iraq–China Schools Programme
PowerChina & Sinotech
Contracts for 1,000 schools
South Basra Integrated Energy Project (Tuba)
Geo-Jade Petroleum (with Basra Crescent JV)
Integrated deal covering Tuba field expansion (~100 kbpd), ~200 kbpd refinery, 650 MW thermal, and 400 MW solar components.
Baghdad Waste-to-Energy (Nahrawan)
Shanghai SUS Environment
$497–500m, 100 MW plant handling 3,000 t/day waste. NIC licence, 25-year term. Groundbreaking held 20–21 Mar 2025.
Muthanna Solar
PowerChina
Cabinet approved 750 MW solar plant with PowerChina in Muthanna (May 30, 2023).
Nasariya International Airport
China State Construction Engineering Corporation
Under construction
Railway and Highway Modernisation / Development Road
Multiple firms (various potential contractors)
Focus on north–south corridor upgrades (Umm Qasr–Basra–Baghdad–Mosul)
These projects reflect the hybrid integrated energy and infrastructure projects favoured by both Beijing and Baghdad. For a number of these oil collateral underpins long-tenor Chinese credit lines and/or EPC scopes are designed to meet local content requirements and support Iraq’s urgent need to develop energy and transportation infrastructure.
The legal and regulatory framework governing Chinese investment in Iraq is multi-layered and rapidly evolving.
In the upstream petroleum sector, legacy statutes such as the Ministry of Oil Law No. 101/1976, together with Exploration, Development and Production Service Contracts (EDPCs/DPCs), provide the contractual foundation for most new Chinese-operated fields. Key contractual provisions - including transfer of interests, cost recovery and operations obligations - are embedded in each agreement, and any amendments require approval from the state regional oil company counterparty.
In the midstream and downstream sectors, the Private Investment in Oil Refining Law No. 64/2007 offers incentives such as 40-year land leases, tax holidays, and discounted feedstock tariffs for refinery developers. The power and renewables sector is governed by the Electricity Law No. 53/2017, with long-form power purchase agreements (PPAs) and payment obligations typically backed by Ministry of Finance guarantees or potentially oil-backed payment in kind (PIK) structures. Environmental compliance is increasingly stringent, with Environmental Impact Assessments mandated under Law No. 27/2009 and project standards benchmarked to performance standards appropriate for major projects.
Foreign investment and public-private partnerships (PPP) are facilitated by the Investment Law No. 13/2006, outside the upstream sector and provides a streamlined licensing process through the National Investment Commission (NIC), including land lease rights for up to 50 years and corporate tax exemptions. The PPP Instructions No. 1/2024 require comprehensive feasibility studies, competitive tendering (or a justified waiver), and Council of Ministers approval, with dispute resolution provisions allowing for conciliation and, with government consent, arbitration. Where federal budget funds are involved, Procurement Instruction No. 2/2014 may apply, while upstream projects typically follow specialized tender and award procedures overseen by the Ministry of Oil.
The standard corporate income tax rate in Iraq is 15%, applied to profits from commercial activity. These rates are supplemented by other taxes such as withholding tax and stamp duty, depending on the nature of the transaction and the parties involved. The Hydrocarbon Tax Law No. 19/2010 imposes a headline 35% corporate income tax on foreign oil companies operating in Iraq. These tax obligations are enforced rigorously, and exemptions must be clearly established by statute or through the relevant investment licensing process where applicable. As a result, careful tax planning and compliance are essential for structuring and operating BRI projects in Iraq.
Chinese investment in Iraq’s Belt and Road projects faces a complex and evolving legal landscape, requiring careful structuring and risk mitigation to ensure project bankability and enforceability.
Despite the breadth of opportunity, Chinese investors and their partners face a range of recurring challenges in the Iraqi market. The table below summarises just a few of the most common points encountered in recent transactions – each requiring various legal and practical mitigations, specific to each project.
Key Risk
Typical Manifestation
Payment Delays
Government arrears; currency-conversion caps
Land Acquisition
Tribal claims, agriculture zoning, antiquities
Procurement Challenges
Council of Ministers waiver or exemptions may be needed
Localization requirements
50 – 80 % Iraqi labour targets
Environmental & Flaring Compliance
Evolving EIA requirements; 0 % routine flaring by 2030 target;
Currency & Financial Controls
Clear and enforceable foreign exchange and remittance provisions for project legal and financial structuring
Dispute Resolution / Enforcement
Need for clear dispute resolution and enforcement provisions
To address these challenges and enhance project bankability, investors are increasingly adopting a suite of structuring tools tailored to the Iraqi context. A robust security package is essential, typically combining a Ministry of Finance payment guarantee, potentially oil-backed payment-in-kind (PIK) mechanisms—whereby SOMO crude liftings are triggered upon payment default—and letters of credit issued by the Trade Bank of Iraq and/or confirmed by major banks. Political risk insurance, provided by export credit insurers such as SINOSURE, is also a key component of the risk mitigation strategy.
Dispute resolution frameworks are evolving to reflect the realities of cross-border investment. While Iraqi law generally governs project contracts, parties increasingly opt for foreign-seated arbitration (such as ICC, LCIA or DIAC) for monetary disputes, with carve-outs for land and customs matters to be resolved in Iraqi courts. Express language regarding matters such as waivers of sovereign immunity and explicit reference to the New York Convention are now standard in well-structured deals.
Environmental, social, and governance (ESG) and local content requirements are also being integrated from the outset. Investors are embedding phased localisation. Environmental impact assessments (EIAs) are aligned with primary law requirements, and also contractually defined performance in project contracts that may refer to the Equator Principles with capital expenditure ring-fenced.
The Central Bank of Iraq’s 2025 ESG Standards require all licensed banks in Iraq (excluding foreign branches for board rules) to establish an ESG board committee, appoint at least one ESG qualified director, adopt and disclose ESG and climate risk policies, integrate ESG into credit and risk management, and publish annual ESG reports.
Recent Central Bank measures restricting on-shore use of U.S. dollars mean projects now require careful planning around currency, and repatriation structures. Investors are increasingly using multi-currency invoicing, exchange-rate protections, and offshore collection arrangements to manage risk. These are evolving areas, and each project must take tailored steps to align financing flows with regulatory requirements.
Finally, procurement strategies are being adapted to the local regulatory environment. At the feasibility stage, investors seek Council of Ministers resolutions authorising single-source awards to contractors for reasons of urgency or technological uniqueness, as permitted under Procurement Instruction No. 2/2014. Project procurement should also consider streamlining for efficient sub-contract approvals and enhanced project delivery.
The legal and regulatory environment for BRI projects in Iraq remains uncertain but relatively stable in the near term. The long-discussed Federal Oil & Gas Law remains stalled in Parliament, and no major new laws are expected before the elections due in November 2025. Instead, incremental adjustments — such as amendments to the Ministry of Oil Law or decrees on gas-sector development — are more likely to shape the sector over the coming period.
China–Iraq cooperation sits at the intersection of strategic opportunity and legal complexity. Investors who take account of Iraqi legal requirements, embed reliable payment protections, and respond carefully to local content expectations are better placed to succeed as regulatory controls evolve. For Belt and Road participants, the priorities are early engagement with Iraq’s legal framework, thoughtful structuring of project arrangements, and adherence to recognised international standards. The pathway to Baghdad remains open, but it requires investors to approach Iraq’s legal and regulatory landscape with patience, preparation, and a long-term perspective.
For further information,please contact Thomas Calvert, Ali Al Dabbagh and Aro Omar.
Published in October 2025
