Iraq says Chinese company wins US$2 billion oil prepayment deal

IRAQ has agreed to a multibillion-dollar oil-supply deal with a Chinese company, according to the Arab nation's official news agency.

SOMO, which oversees Iraq's petroleum exports, picked a Chinese firm after receiving bids from several traders, INA reported, citing an interview with SOMO general manager Alaa Al-Yasiri. While INA didn't name the company or specify if Prime Minister Mustafa al-Kadhimi had signed off on the deal, Bloomberg reported last month that ZhenHua Oil Co, a subsidiary of China's largest state-owned defense contractor, was the winner.

SOMO offered to supply roughly 130,000 barrels a day of crude for five years, according to a letter it sent traders in November. It sought upfront payment for one year of supply, which at current prices would bring in more than US$2 billion, according to Bloomberg calculations.

"Iraq got US$2 billion at zero interest with a premium over the price," INA quoted Mr Al-Yasiri as saying. "There was intense competition between two European and Chinese companies, and the Chinese company won."

The pre-payment deal, a first for Baghdad, is the latest example of China lending to struggling oil producers via state-controlled trading companies and banks.

While all major oil exporters have taken a hit from the Covid-19- triggered plunge in prices since March, Iraq is in one of the weakest positions. Opec's biggest producer after Saudi Arabia, its economy was forecast by the International Monetary Fund to contract 11 per cent last year. The government weakened the dinar by almost 20 per cent against the dollar in December - the first devaluation since since the US-led invasion in 2003 - as its foreign-exchange reserves shrunk.

The oil-supply deal attracted widespread interest among major traders, according to sources. The contract will be one of the largest of its kind in recent history and it allows the winner to ship crude to wherever it wishes for a year. Normally, Middle Eastern crude is sold with strict clauses preventing traders and refiners from re-selling the barrels to different regions.

"The flexibility that Iraq has granted to companies is the freedom to determine the day of loading the shipments, the export destination, the possibility of resale and a set of marketing benefits in return," Mr Al-Yasiri said. BLOOMBERG