Iraq's offer for partially pre-paid 5-year oil supply garners Asian interest: source

Dubai — Iraq's proposal to offer crude buyers a five-year contract to supply 4 million barrels/month that is partially pre-paid has garnered interest from several Asian oil companies, a source familiar with the matter told S&P Global Platts Nov. 24.

Iraq's State Oil Marketing Organization "received numerous responses especially from Asian companies," the source said.

SOMO is still in contact with Western buyers, the source added.

SOMO could not be immediately reached for comment.

SOMO, the state marketer for oil exported from federal Iraq, had sent a letter to oil companies informing them of the proposal, which includes the upfront payment of a year's worth of oil supply. This is the first time that federal Iraq has proposed such a deal, but the semi-autonomous Kurdistan Regional Government in the north of the country already has similar contracts, where buyers essentially lend cash to the region.

Iraq exports most of its oil to Asia, counting India and China as major customers.

Existential crisis

Iraq, OPEC's second largest producer, is struggling to pay public salaries due to dwindling oil revenues as the pandemic batters crude prices. In October, the federal government earned $3.45 billion in oil export revenue, which is not enough to cover salaries, benefits and other essential expenses.

Iraq is going through "an existential economic crisis," Deputy Prime Minister Ali Allawi told an Iraq conference organized by Chatham House on Nov. 23.

The country's economic crunch has been exacerbated by political upheaval with protests that started in October last year and led to the resignation of the government of Adel Abdul Mahdi still continuing sporadically.

The new government of Mustafa al-Kadhimi, which rose to power in May, has struggled to boost economic growth and contain a financial drain of state revenues due to the pandemic, crumbling oil prices and an ongoing political impasse preventing necessary economic reforms.

Quota busting

Iraq has also failed for most of this year to adhere to its OPEC+ quota due to its financial and political struggles.

Including the Kurdistan region, it pumped 3.842 million b/d in October, up from September's 3.60 million b/d and exceeding its OPEC+ quota of 3.804 million b/d, according to SOMO figures.

Iraq, which overproduced May through July, is supposed to make 698,000 b/d of catch-up cuts from September through to December, divided into 203,000 b/d in September and 165,000 b/d in October, November and December.

Allawi, who is also finance minister, told the Chatham House conference that Iraq's acceptance of the OPEC model of "one size fits all" -- allocating output cuts without taking into account member countries' economic and political conditions -- was close to breaking point.