Iraq hires law firm to target buyers of ‘illegal’ Kurdish oil

LONDON - Reuters

Iraq's Prime Minister Nuri al-Maliki speaks during an interview. The central government threatened to sue over the shipments in a long-running dispute that talks between Baghdad and Arbil have so far failed to settle, but it took no legal action. REUTERS Photo

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 Arbil have so far failed to settle, but it took 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?”

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.

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 U.S.-led 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 Arbil 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 Yıldız said on Jan. 30 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.

Yıldız told Reuters in an interview that Turkey would stand by a consensus reached in December between Ankara, Baghdad and Arbil to seek the central government’s permission, but not its blessing, in exporting KRG oil.