Why China Is Being Flooded With Oil: Billions In Underwater OPEC Loans Repayable In Crude
By Tyler Durden
When the price of oil was above $100, many of the less developed oil exporting OPEC members decided to capitalize on the high price and cash out by taking loans using the precious liquid as collateral very much the same way corporate CEOs use their inflated stock (thanks to buybacks they authorize) to issue loans against said stock. And why not: even if the price of oil were to drop, they could just pump more until the principal is repaid. However, few oil exporters anticipated such an acute oil plunge in such as short time span, which resulted in the value of the collateral tumbling by 70%, and now find themselves have to repay the original loan by remitting as much as three times more oil!
According to Reuters, this is precisely what happened in the years preceding the great 2014-2015 oil bust: “poorer oil-producing countries which took out loans to be repaid in oil when the price was higher are having to send three times as much to respect repayment schedules now prices have fallen.”
As a result, the finances of countries such as Angola, Venezuela, Nigeria and Iraq have been crippled, in the process creating further division within the Organization of the Petroleum Exporting Countries.
But while these already poor and corrupt OPEC nations were the biggest losers, one country was a huge winner, the country that provided the billions in virtually risk-free, oil-collateralized loans to any country that requested them. China. The same China which has once again proven smart enough to not demand repayment in fiat but in physical commodities, be they oil, copper or gold.
Take Angola for example: Africa’s largest oil producer has borrowed as much as $25 billion from China since 2010, including about $5 billion last December, which according to Reuters forced its state oil firm to channel almost its entire oil output toward debt repayments this year.
Or Venezuela: ever since 2007, China, which has become Venezuela’s top financier via an oil-for-loans program, has funneled an amazing $50 billion into the Chavez first and then Maduro regimes, in exchange for repayment in crude and fuel, including a $5 billion deal last September. While details of the loans have not been made public, analysts from Barclays estimate Caracas owes $7 billion to Beijing this year and needs nearly 800,000 bpd to meet payments, up from 230,000 bpd when oil traded at $100 per barrel.
Oil pumps are seen in Lake Maracaibo, in Venezuela
Ecuador, one of OPEC’s smallest member countries, borrowed up to $8 billion from Chinese and Thai firms, repayable with oil, between 2009 and 2015, according to the national oil company
Many other countries have borrowed money from China (and others such as producers Exxon, Shell and Lukoil, as well as traders Vitol and Trafigura) and promised to repay in oil included Nigeria, Iraq, Venezuela and others.
Fast forward to today when Angola, Nigeria, Iraq, Venezuela and Kurdistan are due to repay a total of between $30 billion and $50 …read more
Source: Why China Is Being Flooded With Oil: Billions In Underwater OPEC Loans Repayable In Crude
