FX.co ★ Iraq offers 5-year contract for oil

Iraq is currently facing a crisis, which has worsened due to the declining price of oil. According to Bloomberg News, the Iraqi government is trying to alleviate this dire financial situation by offering a five-year contract for the supply of 4 million barrels of oil per month (about 130,000 barrels per day). The buyer will have to pay in advance for one year of delivery, which at current prices will amount to just over $ 2 billion.

SOMO, the country's government agency in charge of oil exports, communicated the offer: "SOMO, on behalf of the Ministry of Petroleum, is interested in offering a long-term deal for the supply of oil, in exchange for an advance payment for a portion of the total allocated amount."

They asked potential buyers to respond by November 27, however, it may be too early for some companies due to internal approvals.

Usually, oil producers rely on upfront payments to raise money, but Iraq has yet to do so.

"They need money," said Ahmed Mehdi of Oxford Institute. "Every month the government lacks about $ 3.5 billion to pay wages, imports, pensions and debts."

Iraq's monthly income has dropped to about $ 4 billion this year, nearly half of what it had in 2019.

Almost all OPEC + countries have experienced economic difficulties this year, but the situation in Iraq is one of the most deplorable. Therefore, it is not surprising that the country tried to disobey OPEC as much as possible during the period of production restrictions.

The International Monetary Fund projects Iraq's GDP to shrink by 12% this year, which is more than other OPEC members with a production quota.

In the offer, Iraq asked potential buyers to pay 48 million barrels upon signing the contract. The supply will be shipped between July 2021 and June 2022.

The proposal softened the situation by allowing crude oil to be shipped anywhere in the world.

Traditionally, Middle East countries restrict shipping locations and exploit price differentials between Asia, Europe and the United States. They also force buyers to clean the barrels themselves, which limits potential profits.