OPEC member Iraq has agreed in principle to offer cash-strapped Egypt 4 million barrels of crude a month on a three-month credit term, in a move that could ease the fuel shortage that has recently hit the Egyptian economy, officials from the two countries said Monday.

The officials told Dow Jones Newswires that Baghdad would supply Cairo with 2 shipments of Basra light crude each month at international prices but the payment will be deferred for three months with no interests incurred. The first cargo is expected in Egypt next month once the deal is finalized, they said.

The value of the deal is close to $400 million a month, based on current market prices.

“We were very keen to get the supplies on 9-month credit but the Iraqis said they won’t be able to do so,” an Egyptian official who asked not to be named said.

An Iraqi official familiar with the matter confirmed the agreement, saying: “Iraq will sell the crude oil to Egypt at normal international prices…Egypt has asked for preferential prices of oil similar, for example, to the prices Iraq is offering to Jordan but so far Iraq has refused.”

The Egyptian-Iraqi deal comes after Libya agreed in principle to offer Egypt crude supplies worth around $1 billion on a one-year credit term. The two neighbouring countries are still discussing the types of the grade and the quantities of the crude that will be refined in Egypt, but the first shipment is expected next month, an Egyptian oil official said Sunday.

Egypt has been facing a slowdown in oil and gas exploration activities over the past couple of years as a result of the continuing unrest since the ousting of former President Hosni Mubarak. The country has been paying hefty premiums for its crude supplies due to the weaker Egyptian pound and difficulties in securing letters of credit for its transactions, while a shortage of state-subsidized diesel has already paralyzed transportation in many parts of the country.

The civil unrest has also led to a risky economic mix of dwindling foreign-exchange reserves, declining tourism revenue and costly price subsidies, economists say. To prop up the Egyptian currency, the central bank has gone through nearly two-thirds of its foreign-currency reserves, pushing the country to the brink of a liquidity crisis.

Egypt is in the throes of trying to secure a $4.8 billion loan from the International Monetary Fund, a move viewed as critical to rescuing its economy and mending its reputation as a place to do business.

People close to the talks say the IMF wants to see Egypt reduce its subsidy spending as part of a reform plan for the loan. But any subsidy changes will probably only further enrage the legions of poor who rely daily on cheap fuel, making the already uncomfortable summer months all that more unbearable.

Iraq Offers 3-Month Credit for Egypt Oil Deal