Iraqi Kurdish pipeline stopped; tanker in limbo off Texas

ISTANBUL/LONDON Wed Jul 30, 2014 12:05pm EDT

A still image from video taken by a U.S. Coast Guard HC-144 Ocean Sentry aircraft shows the oil tanker United Kalavyrta (also known as the United Kalavrvta), which is carrying a cargo of Kurdish crude oil, approaching Galveston, Texas July 25, 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.REUTERS/US Coast Guard/handout via Reuters

A still image from video taken by a U.S. Coast Guard HC-144 Ocean Sentry aircraft shows the oil tanker United Kalavyrta (also known as the United Kalavrvta), which is carrying a cargo of Kurdish crude oil, approaching Galveston, Texas July 25, 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.

Credit: Reuters/US Coast Guard/handout via Reuters

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ISTANBUL/LONDON (Reuters) - Iraqi Kurdistan's attempts to export oil independently of Baghdad hit another obstacle on Wednesday, as a Turkish energy official and industry sources said the autonomous region's pipeline to the Mediterranean has been shut for the past week.

The Kurdistan Regional Government (KRG) has not launched any oil tankers from the Turkish port of Ceyhan in over a month as Baghdad has moved to block the vessels from unloading at foreign ports.

The latest set-back comes as Iraqi Kurdistan's increasingly bitter legal and diplomatic struggle with Baghdad over oil sales threatens to spill over into the United States.

Arguing all oil sales outside its control are illegal, Baghdad this week tried to get a Texas court to seize 1 million barrels of oil aboard the United Kalavrvta tanker, which has been anchored off the port of Galveston since the weekend.

But after a U.S. judge on Tuesday said she lacked jurisdiction given the ship's distance from the shore, the KRG hit back at Baghdad, filing a letter with the Texas court arguing its sales are allowed under the Iraqi constitution.

"The federal government cannot win, because our crude is legally produced, shipped, exported, and sold in accordance with the rights of the Kurdistan Region as set forth in the Iraqi constitution," KRG Natural Resources Minister Ashti Hawrami said.

The United Kalavrvta tanker holds more than 1 million barrels of crude worth more than $100 million at international prices. It was still anchored off Galveston on Wednesday, according to Reuters AIS Live ship tracking.

Baghdad has cut the KRG's budget since the start of the year over the oil sales dispute, heaping pressure on the region of roughly 5 million people that has enjoyed relative stability since the 2003 U.S.-led invasion.

PIPELINE STOPPED

The dispute over exports reflects Iraqi Kurds’ emboldened steps toward seizing greater political and economic autonomy, with oil sales seen as central to the Kurdish dreams of independence despite Baghdad's opposition.

Arbil has begun selling its oil via a new pipeline through Turkey in May, but so far has only successfully sold and delivered one tanker filled with oil from the line. Baghdad has threatened oil traders and put diplomatic pressure on governments not to buy the Kurdish crude.

One Kurdish tanker, the United Leadership, has been anchored off Morocco for almost two months. Another, the United Emblem, has sailed to Asia, and is now anchored off Malaysia.

Unable to deliver its crude, storage tanks for Kurdish crude at the Turkish Mediterranean port have Ceyhan have backed up and are now at capacity, forcing the KRG to shut-off its pipeline.

"There is no flow at the moment and it has been stopped about a week ago because the storage tanks at Ceyhan are full, even the back-up ones," one source familiar with the matter said.

Washington has publicly opposed direct oil sales by the autonomous region, fearing they could contribute to the break-up of Iraq as it struggles to contain the Sunni Islamist insurgency led by the Islamic State.

The Kurdish region's President Massoud Barzani has called on his parliament to ready a referendum on independence after the latest violence in the country.

Kurds have also succeeded in cementing their control of land and oil reserves around the resource-rich city of Kirkuk, while Iraqi Prime Minister Nuri al-Maliki, a Shi’ite Arab who has been an adversary of Iraqi Kurds, has fallen out of favour in Washington.

The United has stopped short of banning U.S. companies from buying the oil while warning them of potential legal risks.

Washington has been pushing the KRG and Baghdad to agree a system that would allow both sides to sell crude, splitting revenues between the autonomous region and the central government. But the two sides remain far apart.

(Additional reporting by Orhan Coskun in Istanbul, editing by William Hardy)

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