Iraq seeks first ever oil prepayment deal as finances strained

FILE PHOTO: General view of Nahr Bin Umar oil field, as workers spray disinfectant as a preventive measure against coronavirus, north of Basra, Iraq March 15, 2020. REUTERS/Essam Al-Sudani

LONDON/BAGHDAD (Reuters) - Iraq is seeking its first ever crude oil prepayment deal to boost its finances as the country struggles to cope with lower oil prices and demand due to the coronavirus pandemic, its oil ministry said on Monday.

The country is seeking a five-year prepayment starting January 2021 until December 2025 to be repaid with cargoes of its Basra crude, according to a letter sent by state oil marketer SOMO to its customers and seen by Reuters.

An official at Iraq’s oil ministry confirmed the document. In the letter dated Nov. 23, SOMO said it will accept bids from possible counterparties until Nov. 27 at 1600 Baghdad time.

“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,” the official said.

OPEC and allies including Russia, known as OPEC+, announced record oil production cuts in the first half of the year as oil demand crashed when the world ground to a near-halt due to COVID-19 lockdowns.

OPEC+ was due to raise output by 2 million barrels per day (bpd) in January but the group is now considering delaying the increase or cutting production further.

Reporting by Julia Payne in London and Ahmed Rasheed in Baghdad; Editing by David Goodman and David Evans