Update: U.S. to Seize Kurdish Oil from Tanker off Texas

Posted by Joseph Keefe July 29, 2014

U.S. authorities are set to seize a cargo of oil from Iraqi Kurdistan anchored off the Texas coast after a judge approved a request from Baghdad, raising the stakes in an oil sales dispute between Iraq's central government and the autonomous region.

The tanker United Kalavrvta, carrying some 1 million barrels of Iraqi Kurdish crude oil worth more than $100 million, arrived near Galveston Bay on Saturday, but has yet to unload its disputed cargo.

The U.S. judge's approval of the request from Baghdad deals another blow to the Kurdistan Regional Government's (KRG) attempts to establish its own oil sales, which are seen as a crucial step in the autonomous region's push for independence.

Baghdad, which is struggling to contain a Sunni Islamist insurgency that has captured swathes of central and northern Iraq, sees such oil sales as smuggling.

It has cut the KRG's budget since the start of the year over the oil sales dispute. Washington has opposed the KRG's oil sales, fearing they could contribute to a break-up of Iraq, but has stopped short of banning U.S. companies from buying the oil.

The judge's order was issued to the U.S. Marshals Service, an enforcement agency within the U.S. Department of Justice.

"Although the U.S. government did not act to stop the tanker, Baghdad has been able to make use of the U.S. courts," said Richard Mallinson at UK-based consultancy Energy Aspects.

"The question is now whether the KRG has anything left up its sleeve to either overcome this legal obstacle or to find buyers elsewhere in the world. The prospects for the Kurds putting oil exports on a sustainable footing without Baghdad's approval are looking increasingly dim."

A spokesman for the KRG's Ministry of Natural Resources did not immediately respond to requests for comment.

CNBC News said documents showed the buyer of the oil was a British Virgin Isles-registered company called Talmay Trading, which has previously traded Russian crude. Reuters was not immediately able to confirm the report.

Legal Dispute
The ship, which is too large to enter ports near Houston and dock, was given clearance by the U.S. Coast Guard on Sunday to transfer its cargo offshore to smaller boats that would deliver it to the U.S. mainland.

But Iraq's central government, in a court filing on Monday, laid claim to the cargo.

To carry out the order from Magistrate Judge Nancy K. Johnson of the U.S. District Court for the Southern District of Texas, the Marshals Service may need to rely on companies that provide crude offloading services.

The filings on Monday did not name the end-buyer of the cargo in the United States. AET Offshore Services, a company in Texas that had been hired to unload the tanker for the buyer, asked in a separate court filing whether Iraq's claims were valid.

The judge's order said the vessel would be allowed free movement after the cargo is unloaded.

The U.S. State Department has said the oil belongs to all Iraqis, and warned potential buyers of legal risks. But it has also made clear it will not intervene in a commercial transaction.

Piecemeal oil exports have gone from Iraqi Kurdistan to Turkey and Iran by truck in the past, which Baghdad also opposed. But the opening of a new pipeline to Turkey earlier this year, which could supply the Kurds with far greater revenues, has met much fiercer opposition from Baghdad.

At least one cargo of Kurdish crude was delivered to the United States in May to an unidentified buyer, and four other cargoes of Kurdish crude have been delivered this year in Israel.

One Kurdish tanker of crude pipelined to Ceyhan, the United Leadership, has been stuck off the coast of Morocco for more than a month.

Another, the United Emblem, has sailed to Asia, and is anchored about 15 miles (24 km) off the coast of Malaysia according to Reuters AIS Live tanker tracking after passing through the Singapore Strait, a key oil trading hub.

The case is Ministry of Oil of the Republic of Iraq v. Ministry of Natural Resources of Kurdistan Regional Governate of Iraq et al, U.S. District Court, Southern District of Texas, No. 3:14-cv-00249.