Bai Al-Salam, Sukuk & Hydrocarbon Rich Countries

Hydrocarbon-rich countries have two reconcilable challenges. In the current low price environment, their budgets are under pressure. Typically, these countries control hydrocarbon ownership and distribution.

One of the most underused contracts in Islamic finance is the salam contract. This allows a commodity producer to agree on a price, quality and quantity of a commodity, and a future delivery date. The buyer pays on spot. The producer delivers at a future date.

My recommendation is that hydrocarbon producing countries seeking to address their budget deficits, issue sukuk al salam. The basic model is simple. Refer to Diagram 1 for illustration.

Diagram 1: Sukuk Al Salam