Iraq seeks higher oil revenue by cutting buyers’ discounts

Iraq is seeking to reduce the discounts on crude oil it offers international buyers in an attempt to increase revenues, despite the high cost of shipping through the Strait of Hormuz.

The discounts were to encourage shipments through the waterway, where attacks and security risks have driven up transport and insurance costs.

Iraq now want to negotiate better terms as the country rebuilds its oil exports following months of disruption.

Baghdad was offering discounts of $25 a barrel to buyers in August, before increasing to at least $34 a barrel to tempt them to lift more shipments, according to Iraq’s Shafaq news agency, citing a Reuters report.

Brent crude prices have hovered above $100 recently as tension between Iran and the UAE around Hormuz has remained high.

“As you know, transport through Hormuz is now extremely difficult and risky. This has increased shipping fees and insurance by nearly 10 times,” Iraq oil ministry spokesman Salim Al-Rikabi said in a TV interview broadcast by the ministry.

“This means that foreign oil companies are paying large sums of money for shipping and insurance and this requires us to give them discounts on crude lifted at our ports. The policy now by the state organization for marketing oil is to negotiate the best discounts for us so our oil prices will remain high and allow us to increase revenue.”

Al-Rikabi said Iraq, which controls nearly 145 billion barrels of recoverable oil deposits, has also managed to transport around 2 million barrels over the past week on vessels operated by the state-owned Iraqi Oil Tankers Company, adding: ”We are working to transport more.”

He said Iraq’s oil exports have now stabilised at around 2.7 million barrels per day, including nearly 2.4 million bpd through Hormuz and the rest via Turkey.

Al-Rikabi told the official daily Al-Sabah last week that crude and petroleum product exports earned Iraq between $4.5 billion and $5 billion last month.

The income is far higher than the oil revenues achieved in May when Iraq’s oil exports were only around 200,000 bpd. But they remain way below the monthly average of $7 billion to $8 billion earned by Iraq last year.

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Al-Sabah reported last week that Iraq expects to spend nearly ID217 trillion ($167 billion) in 2027, with oil exports forecast to exceed pre-war levels and rise to around 4 million barrels per day.

Iraqi energy experts said that despite the large discounts, Baghdad is still netting relatively high revenues due to strong crude prices in global markets.

“Despite the significant price discounts offered by SOMO (State Oil Marketing Organisation) for oil exported through Hormuz, the net selling price of Iraqi crude currently stands at around $65 per barrel,” said Nabil Al-Marsoomi, a university economics and energy professor.

“Given that oil shipments have recovered to nearly 80 percent of their pre-war levels, Iraq’s total crude exports for this month are expected to reach 3 million bpd. This means that oil revenues are approaching their pre-war levels,” he added.