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Iraq Backs Out Of $2B Deal With China

Iraq decided to back out of its intended oil-supply agreement with China that would have given the cash-strapped nation $2 billion upfront.

An agreement with China that would have allowed cash strapped Iraq some $2 billion upfront was turned down by Iraq itself.

Last November Iraq called out on oil traders for a five-year supply deal in a bid to gain some respite from their reeling economy. The proposal was for Iraq to deliver 4 million barrels of oil a month or about 130,000 barrels a day but with the buyer having to pay upfront for a year's supply. 

China's Zhenhua Oil Co. was the winning bidder that time, which is a subsidiary of defense contractor Norinco. 

And though deals like this are rare in the oil industry and could have improved Iraq's financial condition immediately, Iraq decided to back out of the deal when prices of oil started to improve. Oil prices soared 62% since the start of November to around $63 a barrel largely due to the recent roll out of coronavirus vaccines.

In the BBC Arabic interview, Ihsan Abdul Jabbar confirmed that they indeed decided to halt the agreement. They were looking to have as much liquidity as possible in January and February of this year and were worried that the prices of oil won't exceed $40 a barrel.

Finance Minister Ali Allawi mentioned that pre-payment deals such as this were problematic in the sense that it requires a sovereign guarantee.

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