In late November, the Iraq Oil Report reported that Iraq was seeking an advance payment of approximately US$2 billion in exchange for a long-term crude oil supply contract to address its increasingly distressed finances amid the COVID-19 epidemic. crisis.
Such an operation is often called an oil-for-loan transaction. In the past, Angola, Venezuela, Ecuador and other countries have also conducted oil-for-loan transactions with China. Now, Iraq seems to have decided to enter into oil loan transactions with China.
According to reports from Bloomberg, Reuters and other media on Tuesday, Iraq has selected a Chinese company and is preparing to sign a multi-billion dollar contract with China Zhenhua Petroleum Co., Ltd. . Foreign media reported that according to people familiar with the matter, SOMO, Iraq’s agency responsible for oil exports, selected Zhenhua Petroleum after inquiring about prices from oil traders. However, there is no “official announcement” yet.
Iraqi Cabinet spokesman Hassan Nadhim said on Tuesday that there had been “several proposals” before Prime Minister Mustafa al-Kadhimi made a final decision. They are studying the proposals.
01. Iraq sells oil to save itself
The global pandemic of the new crown epidemic has triggered a sharp drop in global oil prices. This has caused profits to plummet in major oil-producing countries, especially those in the Middle East whose economies rely heavily on oil. This is even more true for Iraq. Oil exports account for nearly all of Iraq’s government revenue. According to the International Monetary Fund’s forecast, Iraq’s economy will shrink by 12% this year, more than any other OPEC member.
Thousands of Iraqis have taken to the streets in recent months to protest deteriorating living conditions. In order to ease financial pressure, Iraq intends to seek to sign a five-year supply contract of 4 million barrels per month (approximately 130,000 barrels per day) to ease its poor financial situation. Buyers will pay upfront a year’s supply, which amounts to just over $2 billion at current prices, according to calculations by Bloomberg.
SOMO, the agency responsible for oil exports in Iraq, said in a letter sent to oil traders: “SOMO, on behalf of the Ministry of Petroleum, is interested in proposing a long-term crude oil supply agreement in exchange for the total An advance payment of a small portion of the supply”. In the letter, Iraq asked potential buyers to pay for 48 million barrels of crude oil after signing the contract, which will be delivered between July 2021 and June 2022.
In addition, to increase its attractiveness, Iraq allows buyers to ship crude oil to anywhere in the world during the year. By convention, Middle Eastern crude oil sellers have strict terms when selling Middle Eastern crude oil, prohibiting traders from taking advantage of price differences between Asia, Europe and the United States to resell in different regions.
02. Zhenhua may be signed
According to a report by Bloomberg, a person familiar with the matter said , Iraq’s agency responsible for oil exports, SOMO, has awarded a five-year crude oil supply bidding contract to China Zhenhua, including an advance payment period of US$2 billion. The source said that in the tender held by SOMO, the company submitted the “most competitive offer”.
According to the contract, Zhenhua will receive 48 million barrels of Basra crude oil per year from January 2021 to December 2025. SOMO requires bidders to pay in advance for crude oil supplied between July 1, 2021, and June 30, 2022, within 30 days of signing the contract.
Zhenhua is a subsidiary of China North Industries Co., Ltd. It was established in 2003 and is headquartered in Beijing. It is a national key It supports international oil companies mainly engaged in oil and gas industry investment, oil and gas exploration and development, international oil and gas trade, oil product storage and transportation, oil refining and other businesses.
As one of the important teams that actively participates in the country’s “Going Out” strategy and the “Belt and Road” construction, it has a lot of “intersections” with Iraq. Just in 2018, Zhenhua Petroleum and SOMO, the Iraqi organization responsible for oil exports, had been negotiating for several months to plan to establish a joint venture in Tianjin to expand China’s crude oil import channels. In addition, Zhenhua Petroleum also owns part of the southern part of Iraq’s eastern oil field and the Ahdab oil field.
Under the guidance of national energy development policies, Zhenhua Petroleum is committed to building an industry-leading mechanism to cultivate market development, technological innovation, project operations, capital operations, risk management and control, and international resources. Integration and other aspects of distinctive competitive capabilities.
Up to now, Zhenhua Petroleum has operated 8 oil and gas exploration and development projects in 7 countries, with geological reserves of 1.92 billion tons, and the annual output of oil and gas fields in production exceeds 12 million tons; crude oil , natural gas, etc. The annual trade volume exceeds 60 million tons, and the annual sales revenue exceeds 100 billion yuan; it has established an international marketing and information network, and has set up branches in more than 10 countries; it has established an enterprise from oil and gas field exploration and development to international oil and gas trade, warehousing and transportation , petroleum refining industry chain. Zhenhua Petroleum has established a business model of coordinated development of upstream, midstream and downstream, forming a value chain system that organically integrates oil and gas exploration and development, trade, storage and transportation, refining, finance, futures and other links. </p
