Iraq Sues to Seize $100 Million of Kurdish Crude in Texas

(Corrects reserve estimate in first paragraph under Kurdish Resources subhead in story published July 28.)

The Iraqi Oil Ministry is seeking a court order to seize more than $100 million of oil waiting to offload in Galveston, Texas, that it claims was illegally pumped from wells in Kurdistan.

Kurdish officials “misappropriated” more than 1 million barrels of oil from northern Iraq and exported it through a Turkish pipeline, according to a complaint filed today in federal court in Houston.

The U.S. officially recognizes Kurdistan as part of Iraq, although the Kurdish people have jockeyed with the Baghdad-based national government for autonomy for more than a decade. Oil revenues from the northern oil fields could fuel Kurdistan’s fight for independence.

The Iraqi government warned Kurdish officials to stop the illegal exporting through Turkey, which began in December, according to the complaint. The crude shipment, currently docked off Galveston, left Ceyhan, Turkey, on June 23, and has “changed destinations multiple times” while at sea, according to the filing.

If a U.S. refinery accepts shipment of the crude, it will send a signal to the rest of the world that it is acceptable to do business with the Kurdish government, said Carl Larry, president of Oil Outlooks & Opinions LLC.

“It opens the door to some kind of breakup in that region where you could have a separate Kurdistan and Iraq,” Larry said in a telephone interview. “It’s definitely going to create that separation, and more people are going to recognize that and respect it.”

Iraq’s Expense

The Iraqi Oil Ministry asked U.S. marshals to oversee lightering operations to remove crude from the tanker and store it onshore at Iraq’s expense. A proposed arrest warrant filed with the complaint doesn’t ask to seize the United Kalavrvta, the Marshall Islands-flagged tanker, which is too large to enter the Houston Ship Channel and offload cargo directly.

A lightering contract has already been signed, according to the complaint, and the tanker has been cleared to proceed with offloading by the U.S. Coast Guard, according to an agency spokesman.

“The United Kalavrvta has completed all the standard procedures with the Coast Guard to conduct business here,” Andy Kendrick, a Houston-based spokesman for the agency, said in an e-mail. “We are not imposing any additional criteria.”

Phillip Dye, a Houston attorney representing the Iraqi Oil Ministry, didn’t immediately return telephone or e-mail requests for comment after regular business hours.

Kurdish Resources

Oil producers are actively pursuing resources in coordination with the Kurdistan Regional Government, which estimates the northern territory holds 45 billion barrels of oil reserves. The Kurdish government expanded its control over the country’s resources in early June, when Kurdish Peshmerga armed forces took control of northern Iraq’s key oil hub, Kirkuk, after militants routed the Baghdad government’s army.

The case is Ministry of Oil of the Republic of Iraq v. 1,032,212 Barrels of Crude Oil Aboard the United Kalavrvta and the Ministry of Natural Resources of the Kurdistan Regional Governate of Iraq, 3:14-249, U.S. District Court, Southern District of Texas (Galveston).

To contact the reporters on this story: Laurel Calkins in Houston at lcalkins@bloomberg.net; Dan Murtaugh in Houston at dmurtaugh@bloomberg.net

To contact the editors responsible for this story: Michael Hytha at mhytha@bloomberg.net; David Marino at dmarino4@bloomberg.net Fred Strasser, Joe Schneider

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