Let's expand it a bit. I will simplify a bit.
Chinese consumption of oil: 100 units
Iraq consumption of oil: 5
World production/consumption: 400 units
Non-Chinese units of oil consumed: 300 units.
Chinese production, domestic: 10 units.
Iraq production: 10 units.
Iraq exports to world: 5
China decides to unprofitably invest in Iraqi production, and gets to benefit from this, bying 100% of Iraqi exports, for the sake of argument.
New Iraq production: 20 units.
Net Iraq exports: 15 units.
Net world production: 410 units.
Net Chinese consumption is still 100 units.
Non-chinese oil production/consumption: 310.
10 more units are available to everybody, increasing supply beyond where it would be normally.
That means, all other things equal, that anybody, including the US, gets slightly cheaper oil, since there is now more supply relative to demand.
Basically what has happened is that the Chinese have lost money producing oil that would not have been produced otherwise, and because they are not bidding against us for the oil that is produced, we benefit.
FUNGIBLE.
China's external demand does not change, but they have added new capacity that could not profitably be produced otherwise, which amounts to a subsidy of everybody else's oil.