Italy Warns Oil Traders off Kurdish Tanker

Posted by Joseph Keefe June 6, 2014

Italy sees possible Iraqi legal action over Kurdish oil; Kurds, Baghdad battle over sales from autonomous region. Tanker of Kurdish oil currently floating off Morocco.

Italy has warned oil traders they face potential legal action from Baghdad if they buy disputed exports of crude from Iraqi Kurdistan, in the latest setback for the autonomous region in its struggle with the central government over oil sales.

The Kurdish Regional Government (KRG) loaded its first pipeline shipment of Kurdish oil onto the United Leadership tanker at the Turkish port of Ceyhan two weeks ago, in a move it said was designed to show Baghdad it controls its own oil sales.

But so far the KRG has been unsuccessful in finding a buyer for the oil, as Baghdad has stepped up pressure on countries with political and economic links to Iraq.

A letter from the Italian Industry Ministry warned traders and refineries that the Iraqi government had told its embassy in Baghdad that such crude sales were illegal, and they could face penalties from its oil marketing arm, SOMO.

"SOMO reserves the right to take legal action against the buyer of such a cargo," said the letter, dated June 4.

Two copies of the letter were provided to Reuters by traders at separate companies, including one at an Italian refinery. A spokesperson at the Italian Department of Energy was not immediately available to comment.

While the letter stopped short of saying Italian refineries would be barred from buying the oil, it is the first sign that European countries are responding to pressure from Baghdad.

Italian state-backed energy major ENI SpA has a 25 year contract with Baghdad to develop the Zubair oil field, which has a production target of 850,000 barrels per day (bpd). Italian refiners, including ERG and Saras, also import Iraqi crude.

"The government, which controls ENI, is showing Iraq it's doing its part," one Italian oil trader said.

FLOATING OFF MOROCCO

On Thursday, the United Leadership sailed away from Morocco after authorities in the North African country declined to let it unload its cargo of 1 million barrels of crude at the Mohammeddia refinery.

After first sailing towards the U.S. Gulf Coast, according to tanker tracking data and shipping sources, the vessel turned back towards the Mediterranean at the end of last week.

The U.S. State Department last week said it did not condone oil sales bypassing Baghdad.

The tanker is now sitting almost 30 miles off Morocco, Reuters AIS Live ship tracking showed, and remains loaded with crude according to satellite measurements of the depth the ship is sitting in the water.

The KRG originally said the oil would be sold to German or Italian refiners, but so far the tanker has not sailed towards those destinations.

Until last month, Kurdish oil exports were constrained to a small volume shipped by truck to two Turkish ports on the Mediterranean. Iraq's state marketer made threats of legal action but did not follow through.

But the start of shipments on a new Kurdish pipeline to Turkey that currently delivers around 100,000 bpd to Ceyhan means significantly higher revenues for the region.

Iraq and Kurdistan have been trying to reach a political agreement over oil sales, but five months after the pipeline started up there had still been no final decision, prompting the KRG to go it alone.