SULAIMANI (ESTA) — Iraq is expected to sign a multibillion-dollar contract with a Chinese oil company, receiving money upfront in exchange for long-term oil supplies, according to Bloomberg.
Bloomberg cited people familiar with the matter that Iraqi State Organization for Marketing of Oil (SOMO) picked China ZhenHua Oil Co. after asking oil traders for bids.
ZhenHua, founded in 2003 as a subsidiary of the largest Chinese state-owned defense contractor, produces and trades oil. The company has played a larger role in Beijing’s so-called “going global” policy for energy, according to Bloomberg.
Iraqi government’s spokesman Hassan Nadhim said on Tuesday that there had been “several offers” and they were being studied before Prime Minister Mustafa al-Kadhimi makes the final decision.
The winning bidder will buy 4 million barrels per month, or about 130,000 a day, according to terms of a letter SOMO sent last month, Bloomberg reported. The deal runs for five years – but the upfront payment is only for one year.
The people familiar with the matter told Bloomberg that the deal had attracted widespread interest among major oil traders. The deadline for the tender was also extended from late November to allow companies more time to bid.
The deal is the latest example of China, via state-controlled trading companies and banks, leading to struggling oil producers such as Angola, Venezuela and Ecuador, with repayment in the form of oil barrels rather than cash, Bloomberg said.
Iraq, OPEC’s second-largest producer of crude, is facing an economic crisis over falling of oil prices and an OPEC+ agreement to cut production by more than one million barrels per day as well as the coronavirus pandemic.
A large portion of Iraq’s budget relies exclusively on oil exports while the oil prices have plummeted amid the global recession due to the pandemic.
Iraq’s economy will contract 12% this year, more than that of any other OPEC member under a production quota, according to International Monetary Fund forecasts.