Iraqi parliamentary committee recommends oil groups paid with crude not cash

Dubai — Iraq's economic parliamentary committee has recommended paying oil companies operating in OPEC's second-largest oil producer with crude instead of cash and cutting unnecessary costs, the state-run Iraqi News Agency reported Thursday.

The proposals were among 14 recommendations tabled to cope with the oil price crash, a member of the committee, Mazen el-Fili, said in a statement carried by INA.

The committee also recommend the semi-autonomous Kurdish region in northern Iraq supply the Baghdad government's oil ministry with its crude to be marketed federally, rather than by the Kurdish oil ministry.

Revenue from the oil sales would be distributed among Iraq's governorates, according to the size of their population.

"Paying IOCs in crude oil rather than cash is a method that has been used fairly successfully by the Kurdistan Regional Government in specific circumstances with a limited number of suppliers and partners," said Niamh McBurney, head of Middle East and North Africa at Verisk Maplecroft.

"With a considerably larger number of IOCs and services companies to pay, the greater volumes involved, and the incredibly low prices of Iraqi crudes at the moment, this would be unsatisfactory for IOCs," McBurney said.

The oil ministry was in talks with IOCs over the best way to move forward given the low oil prices and their impact on Iraq's economy and finances, oil minister Thamer al-Ghadhban told al-Mirbad news outlet last month.

There was a need to reach an agreement, whereby the IOCs' payments are not a burden on the government's limited finances while, at the same time, making sure the IOCs continue to operate in the country, Ghadhban said.

Although Iraq is free to pump at will with the expiry of the OPEC+ production agreement on March 31, it was struggling to boost production amid infrastructure constraints and the coronavirus pandemic limiting the movement of personnel and oil activities.

Political vacuum

The Baghdad government exported 3.39 million b/d of crude in March, little changed from February, while prices plunged 45% to an average $28.436/b.

Crude exports from Kurdistan were also steady at 490,000 b/d in March.

Iraq pumped 4.65 million b/d in February, above its OPEC+ quota of 4.46 million b/d, according to the latest S&P Global Platts OPEC survey.

The Kurdistan Regional Government is also grappling with paying oil companies because $1 billion of its cash is stuck in a Lebanese bank suffering from liquidity issues, sources told Platts last month.

Iraq has been nearly rudderless since November, when the government of Adel Abdul Mahdi resigned in the face of mounting protests demanding political and economic change.

Although President Barham Saleh appointed Mohammad Allawi as prime minister designate in February, he failed to muster political parties' support to give him a vote of confidence in parliament.

Saleh's current choice of prime minister designate, Adnan al-Zurfi, is still negotiating with political parties over forming his government within the official 30-day period.

The parliamentary committee has also proposed delaying payments of foreign debt, including reparations to Kuwait.

It also recommended salary cuts of 60% for certain public sector employees and lowering investment spending and nonessential current spending.