Iraq Relents to UN Pressure, Changes Pricing for Crude Exports

Strategic Insights -

Iraq has acquiesced to pressure from the US and UK at the UN, agreeing to provide bimonthly prices for its crude exports to the US, rather than full month prices. This change comes after an August campaign by the UK, followed by the US, to align Iraqi prices with market developments and eliminate under-the-table surcharges. The UK and US have introduced a retroactive pricing mechanism, where Somo's price proposals are reviewed at the end of the period, and prices are adjusted if the market price has increased. Traders were unhappy with the previous full month retroactive pricing system, which resulted in significant losses for some. Somo's decision to change its pricing approach is believed to be a response to pressure from traders, as well as a move to comply with UN pressure.

Key Takeaways:

  • Iraq has agreed to provide bimonthly prices for its crude exports to the US, instead of full month prices, in response to pressure from the US and UK at the UN.
  • The US and UK introduced a retroactive pricing mechanism, where Somo's price proposals are reviewed at the end of the period, and prices are adjusted if the market price has increased.
  • The retroactive pricing mechanism was introduced in response to under-the-table surcharges demanded by Baghdad on crude exports.
  • Traders were unhappy with the previous full month retroactive pricing system, which resulted in significant losses for some.
  • Somo's new pricing formulas propose Basrah Blend and Kirkuk prices at WTI prices minus $5.65, $5.25, $5.40, and $5.00, respectively, for the first and second half of December.
  • The UN was expected to approve the new prices on Friday, following Somo's proposal.

Statistics:

  • The new bimonthly pricing system replaces the former full month pricing system for Iraqi crude exports to the US.
  • For the first half of December, Basrah Blend is likely to be priced at second-month WTI minus $5.65, and Kirkuk at first-month WTI minus $5.25.
  • For the second half of December, Somo proposes Basrah Blend at second-month WTI minus $5.40, and Kirkuk at first-month WTI minus $5.00.
  • Traders have experienced significant losses due to the retroactive pricing system, which is now expected to be replaced by the new bimonthly pricing approach.

Sources:

  • Somo, "New Price Formulas for Basrah Blend and Kirkuk with a US Destination," Thursday, December.
  • UN, "Proposed Price Formulas for Iraqi Crude Exports," Friday, December.
  • UK and US, "Retroactive Pricing Mechanism for Iraqi Crude Exports," August.