UPDATE 4-Iraq seeks arbitration against Turkey on Kurdish oil sale

Fri May 23, 2014 2:59pm EDT

Related Topics

* Sale revenue heading to Turkey's Halkbank

* Turkish ministry says no word on arbitration yet

* Kurdish crude cargo sold to Mediterranean spot market-Yildiz (Adds analyst comment, context)

By Ahmed Rasheed and Isabel Coles

BAGHDAD/ARBIL, Iraq, May 23 (Reuters) - Iraq filed for arbitration against Turkey on Friday to stop exports of oil from Kurdistan after European markets bought the first load of oil piped from the autonomous region.

The move raises the stakes again in a long-running game of political brinkmanship as Baghdad seeks to thwart Kurdistan's moves towards greater self-sufficiency.

The request was filed with the Paris-based International Chamber of Commerce and also targets Turkish state-owned pipeline operator BOTAS for its role in facilitating oil exports from Kurdistan without the Iraqi federal government's consent.

"By transporting and storing crude oil from Kurdistan, and by loading that crude oil onto a tanker in Ceyhan, all without the authorization of the Iraqi Ministry of Oil, Turkey and BOTAS have breached their obligations under the Iraq-Turkey Pipeline Agreement," the government said in a statement.

Both BOTAS and Turkey's Ministry of Energy said they had yet to receive any information about the arbitration from either the ICC or the Iraqi government.

Earlier on Friday the Kurdistan Regional Government (KRG) said the tanker, carrying more than 1 million barrels of crude, was bound for Europe, and that revenue from the sale would be deposited in Turkey's Halkbank.

Kurdistan finished building the pipeline to Turkey late last year and has been using it to pump oil into storage tanks at Ceyhan, as well as exporting smaller volumes by truck.

"This is the first of many such sales of oil exported through the newly constructed pipeline in the Kurdistan region," the KRG said in a statement.

The inaugural sale is likely to put further strain on relations between Baghdad and the region at a time when negotiations to form a new government are getting underway.

Baghdad has already cut funds to the Kurds this year as punishment for their moves to export crude independently, throwing the region into economic crisis.

The KRG said the oil revenue would be treated as part of the region's share of the Iraqi national budget and vowed to comply with United Nations obligations by setting aside 5 percent of it in a separate account for reparation for Iraq's invasion of Kuwait in 1990.

The KRG said it remained open to negotiations with Baghdad, but analysts said the arbitration was likely to push the region further away.

"Baghdad's legal challenge will likely accelerate the Kurdistan region's movement towards full independence," said Jordan Perry, principal MENA analyst at Maplecroft.

NEW OILSTREAM

Turkish Energy Minister Taner Yildiz said on Friday the first cargo had been sold into the Mediterranean spot crude market: "This crude oil will possibly go to Italy or Germany," he said in comments broadcast on TRT television.

The pipeline brings a new oilstream onto global markets, one which will compete with well-established sour grades.

The Kurdish crude in tanks at Ceyhan is a mixture of two grades, Taq Taq and Tawke, market sources said. The tanks contain a small amount of Kirkuk, which was left over in the pipeline when it was shut down at the beginning of March.

The stream is currently a medium sour grade. The oil in storage has an API gravity of around 31.3 degrees with a sulphur content of about 2.7 percent, according to laboratory reports by a local shipping agent that were seen by Reuters.

The grade is close to Iraq's Kirkuk grade, which has an API gravity of around 31-32 degrees and a sulphur content of around 2.0 percent to 2.5 percent.

Russian Urals, the most traded sour grade in the Mediterranean market, has a much lower sulphur content than the Kurdish oil but its API gravity is quite similar. Urals has a sulphur content of around 1.1 percent to 1.3 percent and an API gravity of around 30-31 degrees. (Additional reporting by Seda Sezer and Orhan Coksun in Istanbul, Julia Payne in London; editing by Keiron Henderson and David Evans)

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