Iraq chooses Chinese firm for $ 2 billion oil prepayment

Iraq has selected a Chinese company for a million-dollar oil supply deal as the Arab nation seeks funds to bolster an economy due to the Coronavirus collapse in energy prices.

SOMO, which oversees Iraq’s petroleum exports, chose a Chinese firm after receiving an offer from several traders, the official Iraqi news agency reported, citing an interview with SOMO chief Alaa Al-Yasiri. While INA does not name or specify the company or whether Prime Minister Mustafa al-Kadhimi signed the agreement, Bloomberg reported last month that ZhenHua Oil Co., a subsidiary of China’s largest state-owned defense contractor, was the winner.

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“There was intense competition between two European and Chinese companies, and the Chinese company won,” INA Al-Yasiri was quoted as saying.

This is the first time that Baghdad has sought a prepayment agreement, in which oil is effectively used as security for a loan. It is also the latest example of China lending to struggling oil producers through state-owned trading companies and banks.

According to a letter sent by SOMO to dealers, SOMO offered to deliver roughly 130,000 barrels a day for five years. According to Bloomberg’s calculations, he wanted to pay in advance for one year’s offer, which at current prices would hold more than $ 2 billion. The winner gets flexibility to choose when the crude oil should be shipped for a year, Al-Yasiri said. This mechanism has been approved by the cabinet, he said.

A spokesman for the prime minister did not immediately respond to a request for comment.

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