Iraq Sells Oil at a Discount, Buyers Must Pass through the Strait of Hormuz to Pick Up

Iraq is willing to offer a discount of $33 per barrel, but the catch is—the buyer has to pick up the cargo from the edge of the battlefield themselves.

According to a Bloomberg report on May 5th, the State Oil Marketing Organization (SOMO) of Iraq sent a pricing notice to contract buyers for this month, offering a maximum discount of $33.40 per barrel for its flagship crude oil, Basrah Medium.

Behind this discount, there is a precondition: the buyer's oil tankers must navigate through the Strait of Hormuz and deep into the Persian Gulf to complete loading. However, this shipping lane has been virtually paralyzed since regional conflicts erupted in late February this year.

Discount力度: Time-based pricing, maximum discount of $33.40

According to the SOMO notice dated May 3rd, seen by Bloomberg News, the discount range is divided by loading time periods:

• Basrah Medium crude oil loaded between May 1st and 10th: Discount of $33.40 per barrel

• Basrah Medium crude oil loaded for the remainder of May: Discount narrowed to $26 per barrel

• Basrah Heavy crude oil: Discount is $30 per barrel below the official price

In addition, SOMO also sold Qaiyarah crude oil separately through spot tender last week, but similarly, loading has to be completed deep in the Persian Gulf.

Risks borne by the buyer: Force majeure clause explicitly excluded

There is a phrase in this pricing notice that warrants the market's close attention.

SOMO clearly stated that if buyers accept the May pricing terms, "given that this offer is made under the existing special circumstances known to all parties, the force majeure clause does not apply to this offer."

In other words, Iraq has characterized the current geopolitical risks as "known conditions." Once a buyer takes the order, any losses incurred due to warfare along the way cannot be excused by invoking force majeure. This effectively transfers all the risks associated with navigating the Strait of Hormuz to the buyer.

Shipping nearly at a standstill: Only 2 oil tankers completed loading in April

The reason for such a large discount lies in the severe predicament Iraq's exports are facing.

According to tanker tracking data compiled by Bloomberg for Iraq, only 2 oil tankers completed fueling at the Basra southern port in April, whereas the number in March was 12. Under normal circumstances, the port can accommodate up to 80 oil tankers per month.

The reason is straightforward: Empty tankers cannot pass through the Strait of Hormuz into the Persian Gulf, leading to an almost complete halt in loading operations. Although Iraq can still export crude oil through Turkish pipelines, the scale is far below the level of maritime transport.

Geopolitical risks escalate: Ceasefire agreement's future uncertain

Around the time SOMO issued this pricing notice, regional tensions intensified once again.

On Monday, a new round of conflicts between the US and Iran cast a shadow over the ceasefire agreement that had been in place for about four weeks. Whether the Strait of Hormuz can reopen is still highly uncertain.

For the market, this means that Iraq's substantial discounts are not merely commercial concessions but a direct reflection of the risk premium—The $33 discount per barrel is the "insurance premium" Iraq offers to entice buyers to take on geopolitical risks.

SOMO did not immediately respond to Bloomberg's request for comment.