Iraq: Bitter-sweet developments for KRG as US Judge rules that US$100 million oil dispute should be settled in Iraq

On 29 July we reported that a US judge, in response to a lawsuit filed by the Baghdad government, had signed an order to seize the US$100 million crude oil cargo from the United Kalavrvta tanker anchored off the Texan coast. It now appears that there have been some bitter-sweet developments for the KRG.

While US Magistrate Nancy Johnson issued an order to seize the tanker’s cargo, she also told lawyers for Iraq that the dispute should be resolved through the Iraqi court system. As the tanker is anchored 60 miles offshore, 50 miles outside of federal jurisdiction, the cargo cannot be seized.

Although the inability to seize the tanker’s US$100 million cargo is an obvious plus for the KRG it has come at a heavy price. Prior to the seizure order the KRG had managed to keep the end-buyers of its oil anonymous. However, the main US customer for the cargo has now been named as Lyondell Basell, who has subsequently stated that it would not take it, or any subsequent shipments, until the matter had been resolved by Erbil and Baghdad.  

The filing in federal court, Houston, stated that Iraq's central government has asked Iraq's Federal Supreme Court to block the Kurdistan Regional Government from exporting any crude until its ownership can be determined. The central government contends that the oil is not the sole property of the Kurdistan region of Iraq but belongs to the country as a whole. The KRG, however, asserts that its independent oil sales are their efforts to recoup the funds allocated to it, which the Iraqi central government has failed to supply them with.

The latest legal challenge follows Iraq’s bringing of criminal charges against the Kurdistan government in May, alleging theft of oil revenues. However, Kurdistan has failed to appear in court to address the charges and this "failure to comply with the summonses has effectively blocked the Federal Supreme Court from hearing the merits of the case." Harold Watson, a Houston lawyer representing Kurdistan, did not have an immediate comment on the filing when contacted by Reuters.

The U.S. government has expressed fears that independent oil sales from Kurdistan could contribute to the breakup of Iraq as the government in Baghdad struggles to contain the ultra-hardline Islamic State, a group of Sunni Islamist insurgents who have captured vast areas of the country.

Washington has pressured companies and governments not to buy crude from the KRG, but it has stopped short of banning U.S. firms from buying it outright.

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