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Iraq challenges shipment of Kurdish oil to Texas

A small drama quietly being played out in the waters off Galveston, Texas, could end up having ripple effects across both Iraq and the international oil sector.

At issue is a tanker, the United Kalavrvta, that arrived off the coast of Texas over the weekend. The vessel is carrying about 1 million barrels of crude oil from the Kurdistan region of Iraq. Authorities in Baghdad say that oil, worth over $100 million, is being sold without the permission of the Iraqi government.

On Monday, attorneys for the Iraqi government warned SPT, a Houston-based maritime company, not to unload the Kurdish crude oil, reportedly saying the oil is stolen property.

"This seems to be a legally charged issue at this point," SPT company president Simon Duncan said during an interview with Fuel Fix, an energy industry blog, "and the last thing I want to do is get embroiled in some massive political dispute and have our name dragged through the mud."

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SOMO, Iraq's state-run oil marketing company, said last week it would file lawsuits against any company purchasing oil produced by the Kurdish Regional Government (KRG), a semi-autonomous region in northeastern Iraq.

Iraq's military and central government have fallen back and abandoned territory in the northern part of the country as they attempt to suppress a spreading insurgency there by Islamic militants.

At the same time, the KRG has stepped in and moved to fill the power vacuum in its region. It recently assumed nominal control of Kirkuk, an important oil-producing city that Kurds also consider to be their cultural capital.

And, for its part, the KRG has been producing oil on its own for some time now, without Iraqi government permission, recently establishing an oil pipeline from the Kurdistan region to the Turkish seaport of Ceyhan. Last month the KRG announced a second sale of crude oil, transported from Kurdistan to Ceyhan, had been delivered to unnamed buyers.

"We are proud of this milestone achievement, which was accomplished despite almost three weeks of intimidation and baseless interferences from Baghdad against the tanker-ship owners and the related international traders and buyers," the KRG said in a statement.

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The KRG says is it acting within the authority of Iraq's constitution, which according to the regional government allows it to export and sell oil produced in Kurdistan.

The U.S., in the meantime, has frowned on sales of oil from Kuristan, but has not banned them outright.

Last week, in an interview with Reuters, Carlos Pascual, head of the U.S. State Department's Energy Bureau, said there had been no change in Washington's policy regarding independent oil sales from Kurdistan. But he also hoped Baghdad and the KRG would find common ground.

As for any potential purchasers of Kurdistan oil, "we have made people aware that whatever they buy entails certain risks, and we have consistently told them about that," Pascual said.

The United Kalavrvta left Ceyhan last month, and on Sunday the U.S. Coast Guard reportedly cleared the ship to offload its cargo of crude. But according to Fuel Fix, the vessel is too large to pass through the Houston Ship Channel. It would therefore need to be offloaded by smaller tankers that would take the oil to port.

A Coast Guard spokesman says such a request has yet to be made. That is leading to speculation that the United Kalavryta may either be stuck in a legal limbo, or could eventually end up sailing on to another port.