China, Iraq set to ink multi-billion dollar oil bail-out deal

China is set to support Iraq's cash-strapped government with a long-term contract that will see Baghdad supply oil in exchange for money up-front.

The bailout will take the form of a multi-billion dollar contract between Baghdad and the state-run China ZhenHua Oil Co.

Beijing has struck similar loan-for-oil deals with other struggling oil suppliers, including Angola, Ecuador and Venezuela.

Sources cited by Bloomberg said the Chinese firm was picked after SOMO, the Iraqi agency that oversees exports, asked oil traders for bids.

A final decision is yet to be announced, however, with cabinet spokesman Hassan Nadhim saying on Tuesday that "several offers" were still being studied.

According to the terms outlined in a letter sent by SOMO in November, the successful bidder will pay upfront for the supply of 4 million barrels a month, or roughly 130,000 per day. A Bloomberg estimate based on current market prices places the up-front payment at over $2 billion.

The contract will run for five years, however, up-front payment is only required for the first year.

Iraq, which relies almost entirely on oil revenues, has been hard hit by the effects of the coronavirus pandemic. The deal will mark the first time that Baghdad enters a loan-for-oil arrangement.

According to IMF forecasts, Iraq's economy will contract 12 percent this year - the worst forecast of any OPEC member under a protection quota.

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