Iraq approaches French entities on supplying more crude to Europe

Iraq's state oil marketer SOMO has approached French traders about the possibility of supplying Europe with crude, its director general said May 31, as the EU seeks to implement a ban on Russian seaborne imports.

SOMO still aims to maintain its key supply contracts with Indian and Chinese state customers, who have signed long-term contracts, and Iraq cannot afford to lose those clients, Alaa al-Yasiri told the Iraqi parliament's oil, gas and natural resources committee, according to a statement from the legislative body.

Iraq is targeting refineries globally to process its crude, Yasiri said, which would provide OPEC's second biggest producer with opportunity to benefit from Europe's search for alternative supplies from Russia, the largest source of the bloc's oil.

Europe received 15% of Iraq's crude exports in 2021, or 439,000 b/d, according to commodity intelligence company Kpler.

More recent volumes were slightly lower, with 390,000 b/d in May, or 12% of Iraqi exports.

Asia took the lion's share of Iraqi crude exports in 2021 or 76% of the total, Kpler data showed.

Iraqi grades in demand

The EU's ban on Russian seaborne oil imports, announced late May 30, is expected to further reshape global energy flows already disrupted by Russia's invasion of Ukraine.

Russian suppliers have been forced to offer crude at significant discounts, with many western traders shunning transactions with Russian counterparts due to western financial sanctions.

Major Asian consuming countries China and India, meanwhile, have rekindled their appetite for Russian oil.

Russia's Urals has traded at record lows since the Ukraine invasion, with some deals done at a discount of almost $40/b to the Platts Dated Brent crude oil benchmark. The Urals-Med differential was assessed at minus $34.90/b on May 30 by S&P Global Commodity Insights.

SOMO officials had previously told S&P Global that Iraq planned to redirect crude flows from Asia to Europe.

Traders have said Iraqi grades Basrah Medium and Basrah Heavy were seeing healthy demand in Europe after being displaced in Asia by Russia's Urals, which has similar properties.

"There is more European interest for us now that China and India are buying more Russian oil," one SOMO official told S&P Global May 12 on the condition of anonymity. "We are now seeing adjustments of our traditional crude flows ... refineries in Northwest Europe are looking more at our crudes."

However, Iraq's export potential is hampered by infrastructure constraints at its aging southern terminals, which need revamping to handle more crude.

Volumes at the southern terminals may be boosted with repairs to a single-point mooring at the port of Basra that are scheduled to be performed in June, SOMO officials told S&P Global. When complete, the revamped SPM will add 100,000 b/d of export capacity.

Current exports from Basra are capped at 3.27 million b/d, the officials said, because of damage sustained by loading infrastructure over the years.