Just when it looked like Iraq was becoming a regional leader it decided to halt a $2 billion pre-paid oil supply deal with China's state-owned Zhenhua Oil Co. despite aims to strengthen ties with China.
Iraq decided to end a deal with Zhenhua and sell its crude supply to other customers as oil prices continue to rise. The deal with the Chinese company, that was agreed upon earlier this year, would have seen 4 billion bpd of oil supplied each month. The oil was expected to be ‘destination free’, meaning Zhenhua could sell it to other companies.
However, government officials in Iraq are making the country’s budget priority clear as the State Organization for Marketing of Oil (SOMO) deputy director-general Ali al-Shatari stated, "For the time being we may say it is not applicable at this stage because of oil prices, which are high and we are in a better position and we are even generating additional profits in excess of what the Iraqi budget needs."
The end of the Zhenhua deal follows recent announcements of big oil backing away from Iraq. Earlier this month, oil super-major, BP (0.00%), said it wanted to change its operations in Iraq’s supergiant Rumaila oil field, to create a stand-alone company.
U.S. super-major ExxonMobil (0.22%) announced its intention to withdraw from Iraq’s West Qurna 1 oil field. And Royal Dutch Shell (0.19%) got out long ago, ceasing operations in Iraq’s supergiant Majnoon oil field in 2017 and West Qurna 1 in 2018.
There are several reasons for the Western supermajors’ exit from Iraq, including the movement away from traditional oil and gas towards low-carbon projects, persistent corruption in Iraq’s oil industry, and China’s dominance of Iraqi oil.
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