Iraq’s state oil marketer SOMO has scrapped two joint ventures (JVs) and reduced contracts with some European customers to push its way into trading by selling more of its crude ad hoc, trading and industry sources said, Trend reports referring to Al Arabiya.
After years of watching oil majors and independent traders benefit from large trading operations, state oil firms in North Africa and the Middle East have decided to grab back what they see as lost potential revenues.
The main solution has been to set up JVs to learn the necessary skills, following Oman, which first teamed up with global trading firm Vitol in the last decade. Oman’s JV was ultimately bought out by the government.
Over the last few years, Algeria, the United Arab Emirates, and Iraq have also gone the JV route, while Saudi Arabia has set up a fully-owned trading arm from scratch. Kuwait has held talks with foreign firms for a JV.
“This is what such JVs are always aiming at. Learn from established players and set up something on its own,” one of the sources said.
In 2017, SOMO set up one such JV with Litasco, the trading arm of Russia’s Lukoil, but quit at the end of 2018, four sources said. A similar arrangement with China’s state-run Zhenhua Oil was also axed, sources said.
Neither SOMO or Zhenhua immediately responded to a Reuters request for comment. Litasco declined to comment.
Separately, SOMO briefly sold cargoes on the Dubai Mercantile Exchange and via the S&P Global Platts window. The firm is now selling crude more aggressively itself.
“There’s about five or six of them,” a European trading source said, referring to former JV employees at SOMO. “All young, hungry and trained abroad.”
Iraqi government changes have also spearheaded the shift, according to the sources.
SOMO’s leadership was reshuffled in September 2017, under the previous Iraqi government. Alaa al-Yasiri replaced Falah al-Amri as SOMO’s chief and became Iraq’s representative on the OPEC board of governors.
In October 2018, Thamer al-Ghadhban became oil minister. He has pledged to look at ways to reform the sector and has since made personnel changes in his ministry.
One of the sources familiar with SOMO’s thinking said the firm was looking at how best to deploy the knowledge of its “seconded team” - SOMO employees who had worked in the trading JVs.
The state oil marketer believes it can carry out its physical trading operations alone for now.
“We need to re-evaluate what we gained and how to employ it in our business. We have already started with the spot tenders announced,” the source said.