(Oil Price) Iraq is working on its first-ever deal to sell oil and get the payment in advance as the country struggles to shore up its finances.
Reuters cites a letter by Iraq’s oil marketing company, SOMO, that seeks a five-year prepayment deal starting next January, to remain in effect until December 2025. Iraq will supply the taker or takers with Basrah crude, the report said.
“Prepaid oil cargoes are part of an urgent plan to boost state budget and overcome financial crisis. We have obligations towards OPEC to cut output, we have to repay foreign companies debts and also to keep our economy standing and this is why we need cash in advance for some of our oil sales,” an Oil Ministry official told Reuters.
Oil revenues are critical to Iraq’s budget income, but in recent months Iraq has come under pressure from its fellow OPEC+ partners led by Saudi Arabia to stop cheating on their production quotas and finally start complying with the OPEC+ agreement.
The country, which is OPEC’s second-largest oil exporter, deepened its production cuts earlier this year in response to Saudi Arabia putting its foot down and threatening its fellow OPEC member with a reversal of production policy. However, the compliance didn’t last very long: Argus Media reported earlier this month Iraq’s October average output exceeded its OPEC+ quota yet again.
There were later reports Iraq may be among those that could oppose an extension to the OPEC+ cut agreement at the current rate of 7.7 million bpd. Baghdad, however, was quick to deny the information saying it was committed to the agreement. In late October, Iraq’s oil minister said that the country will support any OPEC+ decision on production. It would hardly grant this support happily, however: one of the options under discussion is a deepening of the current rate of cuts.