Employees work at the Tawke oil field in the semiautonomous Kurdish region in northern Iraq. Iraqi Kurdistan government is in talks to potentially supply China with 4mn barrels of oil, sources said yesterday.

At least 3mn barrels of Iraqi Kurdish oil are on ships heading to Asia, with trade sources naming China as a possible destination as the autonomous region expands efforts to establish independent oil sales in defiance of Baghdad.

Two sources with knowledge of the matter said Iraqi Kurdistan was in talks to potentially supply China with 4mn barrels of oil.

Reuters was unable to identify the Chinese parties involved in the talks, which the sources declined to name, and it was not clear if the cargoes currently on the water were part of the discussions.

A deal could place Beijing on a collision course with Baghdad, one of its major crude oil suppliers, which has tried to block the Kurdish sales that it says are illegal. The Kurdistan Regional Government (KRG) argues they are allowed under the Iraqi constitution.

“The Kurds are in the process of negotiations with the Chinese,” said one of the sources, who asked not to be identified due to the sensitivity of the matter.

“China is buying up multiple origins of oil. So, there is not an issue from that side,” the source added. “It will come down to price.”

Since May, Iraqi Kurdistan has shipped over 11mn barrels of crude from the Turkish port of Ceyhan. The Kurdish sales have been shrouded in mystery, and the KRG has declined to say who is helping it arrange the deals. Trading sources said they may have to discount the oil to attract buyers in a well-supplied market.

According to a Reuters analysis of tanker tracking data, at least three Kurdish cargoes of 1mn barrels each have sailed from Ceyhan towards Asia in the past month, including one that was transferred to a supertanker near the Strait of Singapore on Monday.

Prior to the latest shipments only one 1mn barrel cargo had gone to Asia, but the KRG may be seeking a new major buyer after an attempt to sell crude into the US this summer became embroiled in a legal tangle.  China’s giant state-backed energy firms, including China National Petroleum Corp (CNPC) and PetroChina, together work on over a fifth of the Baghdad-run oil projects. But Beijing also has stakes in Iraqi Kurdistan’s oil production through Sinopec’s 2009 acquisition of Addax Petroleum.

Establishing a buyer as large as China could provide reassurance to other countries and companies who would like to buy oil from the Kurds but fear the ramifications of crossing Baghdad, which has repeatedly threatened legal action. Senior officials at CNPC and Sinopec declined to comment. A spokesman from the KRG’s Ministry of Natural Resources declined to comment when asked about the talks.

“KRG crude, priced at a significant discount, is finding its way across the world to many destinations despite the reluctance of big trading houses due to backlash from (Iraqi state oil marketer) SOMO,” said another source involved with the talks, who also declined to be identified.

“As one of the world’s biggest crude buyers, China is no exception. I believe that a deal is imminent for Chinese refineries to purchase KRG crude.”

 

Islamic Development Bank to price sukuk today

The Islamic Development Bank is aiming to price a US dollar-denominated sukuk of benchmark size and five years duration today, after releasing initial price guidance for the issue, a document from lead managers said yesterday.

The Jeddah-based institution is targeting pricing in the area of 15 basis points over midswaps, the document said. Benchmark size is traditionally understood to mean upwards of $500mn.  The IDB was due to wrap up a series of investor meetings yesterday after announcing last week it had chosen banks to arrange roadshows ahead of a potential deal.  The AAA-rated IDB chose CIMB, Deutsche Bank, First Gulf Bank, GIB Capital, HSBC, Maybank, Natixis, National Bank of Abu Dhabi, and StanChart as arrangers.

 

 

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