Iraq Allowed to Sue Kurds Over Texas Oil Tanker in U.S.

Iraq’s oil ministry can sue the Kurdistan regional government for possession of 1 million barrels of crude that have waited in a tanker circling off the Texas coast for more than five months, a U.S. judge said.

U.S. District Judge Gray Miller in Houston 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.

Miller had previously ruled he had no authority to hear Iraq’s dispute because the alleged misappropriation of the oil took place in Kurdistan, outside the jurisdiction of U.S. courts. After the Iraqis reworked their claim, Miller agreed the Kurds’ involvement in the U.S. oil market triggered a legal exception that properly placed the dispute over the cargo in his court.

“The activity complained of is the taking of Iraqi oil for sale, there are specific allegations that it has been sold in the U.S., and the sale of oil in the U.S. creates a direct effect in the U.S.,” Miller said in a ruling yesterday.

In December, the Iraqi central government and the Kurdistan regional government reached a production-sharing accord that let the Kurds export up to 550,000 barrels of oil a day from northern Iraq, with 250,000 barrels of that amount placed under the control of the central government. That accord in Baghdad didn’t address ownership of Kurdish shipments previously exported, according to court papers, leaving unresolved the dispute over the tanker off the Texas coast.

Seizure Bid

Miller said he wasn’t making a final determination on ownership of the cargo. He also said he won’t consider Iraq’s bid to seize the oil or hold proceeds from its sale under court supervision “unless and until the cargo is brought into U.S. waters.” He said Iraq could make its request when that happens.

The two governments have been sparring over the tanker since late July, when Iraq persuaded a federal magistrate judge in Houston to issue a warrant letting federal agents seize the crude and store it ashore at Iraqi expense if the ship entered U.S. territorial waters.

The tanker has been circling a navigational buoy about 60 miles off Galveston, Texas, since then and was still there as of 4:35 a.m. local time today, according to Bloomberg tracking data.

The price of oil has fallen by almost half during the time the ship has waited offshore. The Kurds had initially hoped to sell the cargo for about $100 million.

Property Law

Miller said he’ll apply Texas state laws covering stolen property to the case, which will also require him to interpret Iraq’s constitution and related case law.

“The heart of this dispute is to whom the text of the Iraqi Constitution grants the right to export oil, and whether the KRG converted the oil here,” Miller explained. “U.S. courts regularly interpret other countries’ laws, including constitutions.”

Hal Watson, the Kurds’ Houston attorney, didn’t immediately respond to phone and e-mail messages seeking comment on the judge’s ruling. Jim Loftis, the lead Houston lawyer for the Iraqi Oil Ministry, declined to comment on the ruling beyond confirming that Miller has agreed to let the lawsuit proceed for now.

The case is Ministry of Oil of The Republic of Iraq v. 1,032,212 Barrels of Crude Oil, 3:14-00249, U.S. District Court, Southern District of Texas (Galveston).

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE