Iraq hires law firms to tar­get Kur­dish oil buy­ers

The Kurdish Globe - - NEWS -

The Iraqi govern­ment has hired a law firm to tar­get any buyer of what it con­sid­ers il­le­gally ex­ported Kur­dish crude oil, a Bagh­dad of­fi­cial said, tough­en­ing its tac­tics in a strug­gle to halt the north­ern re­gion's drive for eco­nomic in­de­pen­dence. For the past year, the Kur­dish Re­gional Govern­ment (KRG) has trucked about 60,000 bar­rels per day (bpd) of crude to Turk­ish ports, avoid­ing the Bagh­dad-run Iraqi pipe­line sys­tem as it tries to gain more con­trol over oil rev­enues. The cen­tral govern­ment threat­ened to sue over the ship­ments in a long-run­ning dis­pute that talks be­tween Bagh­dad and Er­bil have so far failed to set­tle, but it has taken no le­gal ac­tion.

How­ever, Bagh­dad is now pre­par­ing to act be­cause it says the Kurds have raised the stakes by build­ing a new pipe­line link­ing their semi-au­ton­o­mous land­locked re­gion to Turkey. Iraq's oil min­istry in­structed le­gal firm Vin­son and Elkins about two months ago to pur­sue any­one who buys oil pumped down the pipe­line to the Turk­ish city of Cey­han, near the Mediter­ranean, a se­nior Iraqi oil of­fi­cial said. "This is not a game. Any­one who buys this oil is do­ing some­thing il­le­gal," said the of­fi­cial, who asked not to be named. "We will tar­get the com­pa­nies be­cause they are the ones who will mon­e­tize and pay for the Kur­dish oil. How else can it get onto the mar­ket?"

Vin­son and Elkins, which has rep­re­sented the Iraqi govern­ment in the past, de­clined to comment.

Bagh­dad turned a blind eye to small trad­ing com­pa­nies that have bought bar­rels via reg­u­lar ten­ders and trucked them across the bor­der. Those ten­ders are still tak­ing place. Mod­est But while the trucked amounts are rel­a­tively mod­est, Bagh­dad re­al­ized the Kurds were se­ri­ous about in­de­pen­dent ex­ports when they sent test ship­ments down the pipe­line in early De­cem­ber. "You can't com­pare gen­eral truck­ing of 60,000 bar­rels or less to sig­nif­i­cant ex­ports through a pipe­line sys­tem," the se­nior Iraqi of­fi­cial said. "We have a bi­lat­eral, in­ter­na­tional agree­ment with Turkey --rat­i­fied by par­lia­ment-that does not al­low the Iraq-Turkey pipe­line to be used by a third party without the con­sent of the Iraqi govern­ment." The cen­tral govern­ment in­sists it has the sole right to ex­port Iraqi re­sources, in­clud­ing those from the north­ern Kur­dish re­gion which gained de facto au­ton­omy af­ter USled forces de­feated Sad­dam Hus­sein in 1991.

The KRG says its right to ex­ploit and ex­port re­serves un­der its soil is en­shrined in Iraq's fed­eral con­sti­tu­tion, which was drawn up fol­low­ing the Gulf War of 2003, and has passed its own hy­dro­car­bons leg­is­la­tion. So far the talks be­tween Bagh­dad and the Kur­dish au­thor­i­ties in Er­bil have borne lit­tle fruit, and once the stor­age tanks are full, Turkey must de­cide whether to turn off the taps or ex­port the oil in de­fi­ance of Bagh­dad. Turk­ish En­ergy Min­is­ter Taner Yildiz said on Thurs­day that around 220,000 bar­rels of Kur­dish oil has been stored so far in tanks in Cey­han. It re­mains un­sold, and Iraq's threat of le­gal ac­tion ap­pears in­tended to de­ter would-be buy­ers.

Yildiz told Reuters in an in­ter­view that Turkey would stand by a con­sen­sus reached in De­cem­ber be­tween Ankara, Bagh­dad and Er­bil to seek the cen­tral govern­ment's per­mis­sion, but not its bless­ing, in ex­port­ing KRG oil. The cen­tral govern­ment has raised the pres­sure on the Kurds to reach a deal, threat­en­ing to cut their share of the an­nual bud­get if they in­de­pen­dently ex­port oil. On the le­gal front, lawyers said Bagh­dad would strug­gle to make a case stick and any lit­i­ga­tion would be com­pli­cated by ques­tions of ju­ris­dic­tion, but the threat could de­ter com­pa­nies re­luc­tant to deal with the neg­a­tive head­lines. "In­stead of go­ing af­ter the KRG, they are go­ing af­ter peo­ple who will lift oil from them. They are try­ing to say to ex­ist­ing com­pa­nies: 'your deal is in jeop­ardy'," said a lawyer who ad­vises oil firms. Strategy "It is a good strategy be­cause no lifter wants to be in this sit­u­a­tion. It is bad for the an­nual re­port as you have to dis­close any lit­i­ga­tion. You could get small lifters who will take the risk of in­cur­ring Bagh­dad's wrath, but if you are lift­ing 400,000 bpd you are by def- ini­tion not small." Ex­ec­u­tives from oil ma­jors have said they won't touch KRG crude be­fore the Kurds and Bagh­dad reach an agree­ment for fear of los­ing larger con­tracts with the cen­tral govern­ment. "If Bagh­dad says 'no', I don't think any­one like us will go. No one big will go," an ex­ec­u­tive from one oil ma­jor said. "Even for larger trad­ing com­pa­nies... who buy a lot of oil from Bagh­dad, the choice is easy. Why would they take the risk of los­ing that busi­ness?"

Even so, some reg­u­lar buy­ers of Kur­dish oil are likely to be in­ter­ested if the Kur­dis­tan Oil Mar­ket­ing Or­ga­ni­za­tion (KOMO) starts ten­ders for the Cey­han oil. "You don't need to be such a heavy­weight to lift oil from Cey­han. Some­one will be in­ter­ested," said an ex­ec­u­tive from an oil com­pany ac­tive in Kur­dis­tan. "They are push­ing for a deal on two tracks but you can't store oil for­ever. I hope they reach a deal be­fore stor­age ca­pac­ity is reached." The stor­age is far from ex­hausted, po­ten­tially al­low­ing time for talks to progress. Sources said Turkey has al­lo­cated three tanks with a ca­pac­ity of 2.5 mil­lion bar­rels each for the Kur­dish oil, just a frac­tion of which has so far been filled.

Many in­dus­try ex­ec­u­tives ac­tive in Iraq be­lieve both sides are en­gaged in a game of brinkman­ship ahead of Iraqi elec­tions due this year and that a deal will even­tu­ally be clinched. Iraq's top en­ergy of­fi­cial Hus­sain alShahris­tani said this week Bagh­dad had pro­posed that the KRG pay the oil com­pa­nies op­er­at­ing in the re­gion out of its 17 per­cent share of the na­tional bud­get, ac­cept that na­tional oil com­pany SOMO would mar­ket the crude and de­posit all rev­enue into the De­vel­op­ment Fund of Iraq, based in New York.

The Kurds, how­ever, are still in­sist­ing on mar­ket­ing their own oil and say the pro­posal does not give them enough money to pay the op­er­a­tors. Shahris­tani said the KRG would re­spond soon. "There has to be a rec­on­cil­i­a­tion be­tween Bagh­dad and Er­bil. A lot of this is grand­stand­ing ahead of this year's elec­tions," said one oil in­dus­try source ac­tive in the north. "Be­hind the scenes there is a lot more cor­dial­ity, and di­a­logue is still go­ing on. They both want the money." Shahris­tani said the Kurds had promised not to start ex­port­ing while ne­go­ti­a­tions were still con­tin­u­ing. One in­dus­try source in Er­bil said he doubted the Kurds would go ahead with a ten­der for the Cey­han oil soon, hav­ing promised one in Jan­uary. "Ne­go­ti­a­tions with Bagh­dad con­tinue and they will play it quiet for now," he said.

An em­ployee works in an oil­field in Kur­dis­tan Re­gion.

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