Iraq has picked a Chinese state-owned oil producer and trader to pay it upfront for oil, providing much-needed cash to the Iraqi government which has been struggling to make ends meet since the oil price collapse earlier this year.
OPEC’s second-largest producer has selected state-held China ZhenHua Oil Co as the winning bidder to supply 130,000 bpd for five years, with an upfront payment for the first year of supply, Bloomberg reported, quoting sources with knowledge of the plans.
Iraq’s State Oil Marketing Organization (SOMO) has received a lot of interest from major oil traders about the deal it was pitching to companies in recent weeks, according to Bloomberg’s sources.
In the end, SOMO has chosen China ZhenHua Oil, Bloomberg’s sources say. The upfront payment for the first year of oil supply will result in Iraq receiving around US$2 billion, according to Bloomberg calculations.
While lending cash in return for oil is nothing new for China and its state companies—which have provided money to struggling oil producers such as Venezuela or Angola—the cash-for-oil deal would be a first for the Iraqi federal government.
Iraq is one of the most oil-dependent economies, even by OPEC standards, and has seen its budget revenues plummet after oil prices crashed in March.
Oil revenues are critical to Iraq’s budget income, but in recent months Iraq has come under pressure from its fellow OPEC+ partners led by Saudi Arabia to stop cheating on their production quotas and finally start complying with the OPEC+ agreement.
The pandemic and the crash in oil prices could lead to 5.5 million more Iraqis falling into poverty, the World Bank said last month. The crashing oil revenues have put enormous pressure on the Iraqi government, which hasn’t paid government workers in months. Protests have been erupting in Iraq. Most recently, eight protesters were killed this week in the semi-autonomous region of Kurdistan after people had taken to the streets to protest over unpaid salaries.
By Tsvetana Paraskova for Oilprice.com
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