Kurdistan defies Baghdad in Crude Oil Sale

posted by Joseph Keefe May 22, 2014

Move likely to infuriate Iraqi government in Baghdad; first 1 million barrel cargo being loaded at Ceyhan, Turkey. Tanker scheduled to sail later on Thursday, buyer not identified.

Iraqi Kurdistan started loading oil from its new pipeline for shipment from a Turkish port on Thursday, defying the Baghdad government, which claims sole authority over Iraqi crude and declares any independently sold oil as 'smuggled'.

The cargo of 1 million barrels of crude oil was being loaded on a tanker in the Mediterranean port of Ceyhan, Turkish Energy Minister Taner Yildiz told Reuters on Thursday.

"Loading will be completed today," Yildiz said, declining to name the buyer.

The sale is likely to infuriate Baghdad, which has been at loggerheads with the autonomous Kurdish region over the sharing of oil revenues, and denounced Turkey's courtship of the Kurds, warning that steps towards Kurdish economic independence could threaten Iraq's sovereignty.

Baghdad has cut the region's share of the budget to punish it for building the new pipeline, and oil sales can provide the Kurdistan Regional Government (KRG) with desperately needed independent income.

Flows through the pipeline started last December, but Ankara had pledged it would wait for Baghdad and Arbil to resolve their differences before allowing independent oil exports.

After five months of talks and little progress, however, tanks at Ceyhan are now full with 2.5 million barrels of Kurdish oil, and Turkey decided there was no point in further obstructing exports, sources familiar with the sale said.

In late 2013, Iraq's Oil Ministry instructed a U.S. law firm to pursue legal action against any buyer of Kurdish oil.

Iraq's State Oil Marketing Organization (SOMO) issued a statement late on Thursday calling the loading of oil from Ceyhan "an illegitimate deed of the Turkish authorities".

It said that both the Oil Ministry and SOMO "reserve the right to take all legal measures against any company or entity" that loaded Iraqi crude from Ceyhan without Baghdad's approval.

Officials in Arbil could not immediately be reached for comment.

CRUDE FLOW CONTINUES

An official at the GAC shipping agency in Turkey confirmed that a tanker named United Leadership was loading piped Kurdish oil. Reuters AIS Live ship tracking showed the tanker had arrived in Ceyhan around May 20 and was berthed there.

Flows through the KRG oil pipeline have increased since early March while Iraq's federal oil pipeline, from the northern Kirkuk fields to Ceyhan, has been down, an industry source said. That freed up Turkish capacity to handle the Kurdish flows.

"Because the Kirkuk line was not working, KRG was able to pump around 100,000 barrels per day (bpd) at times, which filled up the storage tanks quickly," the source said.

KRG's new oil pipeline connects to the existing Iraqi federal pipeline on the Turkish border.

The industry source said the flow in the KRG pipeline continued as the export cargo was being loaded in Ceyhan.

Another source said the payments for the exports were likely to be deposited with Turkey's Halkbank.

Iraqi Kurdistan began selling its oil independently of the federal government in 2012, transporting a small trickle of condensate and then, in 2013, small quantities of crude through Turkey by truck.

A Turkish company called Powertrans has acted as broker for the Kurdish government, selling the oil via tenders to traders.

Last week, Reuters reported that Israeli and U.S. oil refineries had imported small cargoes of crude oil from the region.

The sales may have immediate political consequences as Iraq's incumbent prime minister, Nuri al-Maliki, looks for partners to form the next government after preliminary results from the April 30 election were announced last Monday.