In November 2020, ahead of annual term contract negotiations,1 Iraq’s State Oil Marketing Organisation (SOMO) announced it would further split its crude streams from two into three by launching a new export grade: Basrah Medium. The launch of Basrah Medium – 27.9° API (3% sulphur) – in January 2021 marks the second time Iraq has split its Basra crude stream, the first being in 2015, with the launch of Basra Heavy2 (see Table 1).
With Iraq being the only major Middle East producer to have API de-escalators to reflect the volatility of delivered cargoes, Iraq’s new crude grade is designed to align the quality in specs between what clients expect to receive (contracted spec) versus what they actually receive (delivered cargoes). From 2015 to 2020, the mismatch in quality between marketed Basra Light and Heavy and delivered cargoes has proven costly to Iraq. It has now been over three months since the launch of Basrah Medium. This Comment explores several issues:
- What were the key drivers behind the launch?
- How has the new grade been priced and has the market welcomed the move?
- In the short-term as OPEC+ cuts ease, which grades are likely to re-enter the market?
- In the longer-term, what other strategic factors are likely to bear on Iraqi crude quality?
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(*) Ahmed Mehdi , Visiting Research Fellow, OIES