Page 5 - MEOG Week 26 2021

MEOG COMMENTARY MEOG

and the economic stability resulting from the sta- of $5.9bn for Iraq, while Kurdish exports via the
bility in the oil price, we decided to freeze this Turkish port of Ceyhan averaged 392,000 bpd.
attempt, to freeze this option.”
SOMO is understood to have been consid- Other priorities
ering implementing an oil sales pre-payment Amid such bullish sentiment, Iraq appears to
solution for some time. However, given the lack shelved any ideas of launching prepayment deals
of warning and short deadline, the move bears for now.
the hallmarks of a knee-jerk reaction to fill Bagh- In February, Al-Shatari was quoted as saying
dad’s $3-4bn monthly operating deficit. that the country is unlikely pursue such initia-
The award followed a brief bidding period tives again soon.
which was extended from four days to 11 to He added that even if it was to be revisited,
give potential participants more time to prepare prepayment deals would not become a ‘trend’
paperwork and fulfil banking requirements. because SOMO’s “target is not to allocate more
However, because of the short window and than, for the time being, around 5% of our
large upfront cost, those able to take part were monthly exports for that purpose, so that Iraq
effectively limited to state-backed Chinese com- will be more than 100% sure it can meet its obli-
panies and international oil firms. Meanwhile, gations under such deals.”
Argus Media quoted an informed banking For now, SOMO is focused on other “busi-
source as saying that companies already engaged ness ideas”, he said last week.
in oilfield development in Iraq were best posi- “In general, [we seek] to increase SOMO and
tioned to win the tender, given that they would Iraq’s crude existence in the Chinese market and
have already carried out relevant due diligence. Asia in general. This may include storage capac-
Meanwhile, the Chinese firm also has a prof- ities, trading activities or facilitating trading
it-sharing deal with SOMO that provides the activities in the market itself, not necessarily on
Iraqi firm with a cut of the earnings from Zhen- [free on board (FOB)] basis from Iraq. It could
hua’s onward sale of its crude, around 18mn be even from there in China to sell our crude and
barrels per year of which goes to the Huajin to enter other products’ business.”
Chemical refinery. Following the trend among Gulf competitors
Baghdad has a similar arrangement in place Saudi Aramco and Abu Dhabi National Oil Co.
with state firm Sinochem, which effectively (ADNOC), Iraq has been discussing plans with
makes the Chinese company a marketing agent state-owned Asian firms to store Iraqi crude in
for sales to Asian refineries. the region.
Shatari said: “There is progress in discussions,
Strong relations but not in taking the final decision or which one
Encouragingly for Iraq, its change of heart does is more feasible than another. But the number of
not appear to have negatively affected its rela- companies offering this and the expansion of the
tionship with Zhenhua nor with other key Chi- way we are digging deep into the details in these
nese customers. discussions can be marked as progress.”
Platts quoted a Chinese source as saying that With oil revenues accounting for more than
while the prepayment deal had been ‘terminated’, 90% of government funds, the two-pronged
other term contracts had not been affected. impact of the coronavirus (COVID-19) pan-
“We have a good and even perfect busi- demic and the oil price slump was catastrophic.
ness relationship with our Chinese customers, Baghdad has been running at a multi-bil-
including Zhenhua. They understand our posi- lion-dollar deficit, and months of surplus come
tion,” said Shatari. as some respite and will provide welcome fund-
Federal exports during May ran at 2.899mn ing for the badly needed build-out of the coun-
barrels per day during May, bringing revenues try’s downstream and power sectors.™

Week 26 30•June•2021 www. NEWSBASE .com P5