Iraq and China are preparing for a “rare” oil deal
Iraq and China are preparing for a “rare” oil deal
12/09/2020 13:06:54
{International: Al Furat News} Iraq is preparing to sign a multi-billion dollar deal with the Chinese company “Chenhua Oil”, under which Baghdad will get cash to help it in its financial distress in exchange for long-term oil supplies.
Bloomberg says the deal is the latest example of China, through commercial companies and state-controlled banks, of lending troubled oil producers such as Angola, Venezuela and Ecuador in exchange for repayment in barrels of oil.
Reuters also quoted an informed source today, Wednesday, that the Chinese state oil trade, Chenhua Oil Company, is at the forefront of competitors in a bid to sell Iraqi crude for a period of five years.
The source added that the company presented the “most competitive bid” in a bid for the Iraqi Oil Marketing Company (SOMO), which attracted participants from international oil companies, trade houses and Chinese and Indian refiners.
Government spokesman Hassan Nazim told reporters yesterday that the Iraqi Ministry of Oil is studying offers from participants in a prepaid oil deal.
The winner of the bid will pay SOMO about $ 2.5 billion for 48 million barrels of crude between July 1, 2021, and June 30, 2022.
The collapse in oil demand and prices has hurt the budget of Iraq, whose government is struggling to pay the salaries of its employees.
Bloomberg quoted sources familiar with the matter that the cabinet has yet to approve the offer.
Under the terms of a letter SOMO sent to oil companies last month, the winning contractor would buy four million barrels of oil per month, or about 130,000 barrels per day.
The company that receives the bid will prepay cash for one year of oil supply at current prices – more than $ 2 billion, according to Bloomberg calculations.
The agreement will be in effect for five years, but the cash advance will be for one year.
Bloomberg described this deal as “rare”, as Baghdad had not previously entered into a prepaid deal, although the Kurdistan Regional Government in the north of the country had concluded similar contracts in the past.
In addition, the deal is considered “rare” also because it allows the company to which the bid is applicable to ship Iraqi crude to any destination it desires for a year. Usually, Middle East crude is sold under strict conditions that prevent traders and refiners from reselling the barrels to different regions.
The deal attracted widespread interest among the top names in the oil trade industry, according to sources. The deadline for bidding, which was in late November, has been extended to allow more time for market competitors.
All major producers have been affected by the collapse in oil prices this year, caused by the Corona virus, but Iraq, which relies on crude oil for almost all of its government revenues, is in a worse position than most countries of the Organization of the Petroleum Exporting Countries (OPEC).
Iraq’s GDP will shrink by 12% this year, more than any other OPEC member, according to IMF projections.
alforatnews.com
