Iraqi Kurds Dealt Setback by U.S. Court Ruling on Oil Sale

  • Court says Kurdish crude oil cargo discharged in Israel
  • DNO, Genel caught up in Kurds' dispute with Iraq government

A U.S. federal court dealt a setback to efforts by Iraq’s self-governing Kurds to sell Iraqi crude oil in the U.S., further complicating the Kurdish drive for financial independence from the central government in Baghdad.

The U.S. Court of Appeals in New Orleans dismissed an attempt by the Kurdistan Regional Government to overturn a judge’s earlier decision against its planned sale of oil to an unidentified buyer in the U.S. The KRG’s eventual sale of the disputed cargo in Israel made the appeal moot, the court said in a ruling.

The case began last year when Iraq’s central government sued to seize a tanker loaded with crude from the country’s Kurdish region that had sailed to the Gulf of Mexico and anchored 60 miles (97 kilometers) off the coast of Texas. The appeals court left in place an order by a judge in Houston requiring the KRG to notify him before trying in the future to sell any oil in the Southern District of Texas.

“The KRG mooted this appeal through its voluntary decision to discharge the cargo in Israel,” the court said Monday in its 13-page ruling. “In so doing, the KRG severely weakened its argument.”

U.S. District Judge Gray Miller in Houston in January rejected the Kurds’ claims of sovereign immunity and said the regional government’s plans to sell its crude in the U.S. gave him authority to hear the lawsuit.

Resisting Control

Iraq’s minority Kurds, who historically have resisted control by governments in Baghdad, are independently developing oil reserves they say may total 45 billion barrels -- equivalent to almost a third of Iraq’s total deposits, according to BP Plc data. When the KRG sought to export oil on its own last year, the central government waged a legal battle to stop Kurdish cargoes from unloading, including the tanker that reached the Texas coast.

The Oil Ministry in Baghdad won’t rule out taking further legal action against the Kurds if they continue trying to export oil that the central government considers to belong to the whole nation, Laith Al-Shaher, director general of the ministry’s legal department, said Tuesday by phone.  

The KRG Ministry of Natural Resources said the court decision means Iraq’s Oil Ministry would now be forced to drop its U.S. lawsuit because the disputed cargo has already been sold and delivered. “There is no prohibition on the KRG’s export of oil to the United States or elsewhere, and the KRG will continue to export hydrocarbons as the Iraqi constitution permits,” the Kurdish ministry said in a statement posted on its website.

Revenue Dispute

Oil companies including DNO ASA and Genel Energy Plc that operate in the Kurdish region have been caught up in the dispute over revenue from crude sales between the KRG and the central government. The Kurdish enclave in northern Iraq exports oil by pipeline to the Mediterranean port of Ceyhan, Turkey.

The Suezmax vessel United Kalavryta departed Ceyhan on June 22, 2014, according to ship-tracking data. The ship dropped anchor off Galveston, Texas, and remained unable to discharge its cargo of 1.03 million barrels of oil before sailing in January to Ashkelon in Israel, according to the appeals court ruling. The tanker discharged its oil in Ashkelon between Feb. 23 and March 3, the court said.

The court’s ruling is a rare confirmation that some oil exported by Iraq’s Kurds has made its way to Israel.

The KRG has denied selling oil either directly or indirectly to Israel. Ship-tracking data in February showed that 40 out of 51 cargoes of Kurdish oil may have discharged at Israeli ports.

The KRG plans to boost oil exports to 900,000 barrels a day by the end of 2015 from the current level of 700,000 barrels, Dilshad Shaaban, deputy chairman of the Kurdish parliament’s natural resources committee, told Turkey’s state-run Anadolu Agency in an interview reported Tuesday.

(The details of the appeals court ruling were corrected in an earlier version of this story.)

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