U.S. to seize $100 million of Iraqi Kurdish oil in tanker off Texas

HOUSTON/LONDON (Reuters) - U.S. authorities were set on Tuesday to seize a cargo of crude worth more than $100 million 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.

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. REUTERS/US Coast Guard/handout via Reuters

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

The U.S. judge’s overnight approval of the request from Baghdad on Monday 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.

Court filings named a British Virgin Isles-registered company called Talmay Trading, which has previously traded Russian crude, as a party to the deal. But it does not own refineries and is not believed to be the end user in the United States.

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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 office of the U.S. Marshal for the southern district of Texas said it was too early to detail how the order would be upheld.

AET Offshore Services, a company in Texas that had been hired to unload the tanker for delivery to the buyer, asked in a separate court filing for a temporary restraining order so that it was not forced to handle the crude.

AET said it “would be placed at considerable risk if required to lighter and take possession of the cargo before those disputes and claims of ownership are resolved.

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 in Turkey, 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.

Additional reporting by Terry Wade and Kriten Hays Driver in Houston; David Sheppard in London and Supriya Kurane in Bangalore