Sixty miles off the coast of Texas sits a crude-oil tanker fully loaded with years of antagonism between the Kurdish region of Iraq and the central government in Baghdad.
The United Kalavrvta, a tanker the length of three football fields, is carrying about 1 million barrels of crude oil from the Kurdish region of Iraq. It set sail for Galveston, but it never got there.
The central government of Iraq, despite recent military setbacks, dispatched its American lawyers to do battle in the federal court in southern Texas, where a judge ruled that the tanker’s cargo, worth about $100 million, should be seized if it came within Texas state waters.
The core of the dispute: The Iraqi government says that the crude cargo belongs to the Baghdad Ministry of Oil and that it was never the property of the Kurdistan Regional Government. But the Kurds argue that the Texas court doesn’t have jurisdiction, and they filed a motion Monday in the court to lift the restrictions on the oil. Michael Howard, an adviser to the Kurdish minister of natural resources, said in an interview that “it’s a constitutional issue that should be determined in Iraq and shouldn’t be exported to U.S. courts.”
As the legal case plays out, the ship waits in the Gulf of Mexico, the fate of its cargo unclear. The drama in Texas is just part of a global play being made by the Kurdistan Regional Government, which is desperately seeking money in the midst of turmoil in Iraq. The Kurds, many of whom have long sought an independent state, say the central government in Baghdad has stopped providing the northern region with its share of the national budget. And without the ability to sell their own oil, Kurdish officials argue, they cannot protect themselves from violent militants or provide government resources. On Sunday, Sunni extremist militants seized three Kurdish towns, sending thousands of Kurds fleeing on foot.
But if the Kurds could sell their own oil, they would also potentially secure the financial base they need to finally declare their independence.
At stake is the U.S. goal of a unified Iraq, and the Obama administration is stuck in the middle of the dispute. Having invested tremendous effort in securing Iraqi federalism and its constitution — which says oil belongs to the entire republic — the administration has been discouraging companies and countries from buying the Kurdish oil cargoes. Revenue-sharing accords in Iraq are supposed to provide 17 percent of oil revenue to the Kurdistan Regional Government.
U.S. officials thought they had brokered an agreement between the Kurds and Baghdad in March, and they were unhappy when it fell apart, according to State Department officials who spoke on the condition of anonymity because they were not authorized to discuss the matter.
Then the Kurdistan Regional Government worked out a deal with Turkey to load the tankers. Iraq said Turkey’s agreement to load Kurdish oil violates accords between the two nations.
The United Kalavrvta is one of five tankers that have been loaded with Kurdish crude oil at the Turkish port of Ceyhan since late May. One delivered its cargo in Israel, with rumors of deep discounts. Another, the United Emblem, which like the United Kalavrvta belongs to a Greek firm called Marine Management Services, is currently in the Strait of Singapore; Reuters reported that it transferred its cargo at sea to an unidentified tanker last week. Still another tanker, the Kamari, left Ceyhan on Friday and was heading for Egypt’s Port Said.
As part of the deal with Turkey, buyers of the oil can make payments to the Kurdistan Regional Government through Turkiye Halk Bankasi, a state-owned bank. But this is not how Iraqi oil revenue is usually handled.
Since 1991, Iraqi oil revenue has gone through the U.N. Compensation Commission, which is still sending 5 percent of the total to Kuwait as reparations for damage done during Saddam Hussein’s invasion and occupation in 1990. The most recent payment to Kuwait, $1.2 billion, was made July 24, bringing the total payments to $46.7 billion.
The Kurds say they have no choice but to broker their own deals.
Senior Kurdish officials visiting Washington in early July said they wanted to change the State Department’s posture and allow Kurdistan to sell its own oil. They said that Baghdad had not paid Kurdistan anything this year and that they should be able to sell oil to make up for that.
“We don’t understand why the State Department has on one hand said we need your help to save Iraq, but we are not giving you any economic tools and you have to do what [Prime Minister Nouri al-] Maliki tells you to regarding oil,” Howard said. He noted that 1 million Iraqis have fled to Kurdistan from the harsh Islamic State, which has taken over much of the country, and that the Kurdish fighting force, the pesh merga, has expanded duties and costs to defend against the militants.
Brett McGurk, deputy assistant secretary of state for Near Eastern affairs, turned to Twitter last week in an effort to lay out the U.S. position. “Our policy on the underlying issue has been clear and consistent. Iraq’s energy resources belong to all of the Iraqi people,” he said. “These questions should be resolved in a manner consistent with the Iraqi constitution.”
One of McGurk’s tweets said: “There is no U.S. ban on the transfer or sale of oil originating from any part of Iraq. Suggestions to the contrary [are] false.”
That triggered speculation about whether the State Department would allow the United Kalavrvta to unload its oil in Texas, but department officials said there was no change in the U.S. position.
McGurk added, “As in many cases involving legal disputes, however, the U.S. recommends that parties make their own decision with advice of counsel.”
That has been how the State Department has described its position. “If we hear of potential buyers, we alert them that buying this oil could expose them to serious legal risks and they should consult legal counsel about that,” a State Department official said on the condition of anonymity.
Oil industry analysts say such warnings have discouraged buyers. The United Kalavrvta idling off Texas was supposed to deliver the oil to an American chemical giant called LyondellBassell, which now says it does not want to get involved in a legal dispute between Baghdad and the Kurds. AET Offshore Services, which was supposed to remove some of the big tanker’s oil outside the port, also bowed out.
Meanwhile the United Leadership, a tanker that took on a cargo of Kurdish oil at Ceyhan on May 22, has been idling off the coast of Morocco. Industry sources say the most likely customer for the oil is Samir, a refinery owned by the al-Amoudis, a Saudi merchant clan.
State Department officials say the best solution to the tanker standoff is for Kurdish leaders to reach an agreement with the government in Baghdad. But that seems unlikely, especially while it remains unclear whether Maliki, who is widely blamed for inflaming ethnic tensions, will be replaced.
Iraq’s judiciary has avoided stepping in. An Iraqi court said the resolution of the dispute over Kurdish oil was a matter of negotiation, not legality.
“The federal government of Iraq is trying to achieve in foreign courts and in the Iraqi supreme court what is denied to the federal government by the Iraqi constitution,” Ashti Hawrami, Kurdistan’s minister of natural resources, said in a statement July 30. “The federal government cannot win, because our crude is legally produced, shipped, exported, and sold in accordance with the rights of the Kurdistan Region as set forth in the Iraqi constitution.”
He said that Baghdad’s failure to share revenue — including $7 billion in arrears this year alone, according to Kurdish official estimates — opens up the Iraqi central government to counter-claims, including compensation for Hussein-era abuses. “Our claims for unpaid compensation, which must be paid as provided in the Iraqi constitution and the law, will also be before any foreign court in which the federal government is seeking to attack us,” Hawrami said.
So for now, the fate of the United Kalavrvta off the coast of Texas is unresolved. The Kurdistan Regional Government isn’t a party to the Texas court case, but it has hired Wilmer Cutler Pickering Hale and Dorr, which sent a letter to District Court Judge Gray Miller.
Lyondell, the chemical company that was supposed to receive the oil, told an oil industry media group, Argus Global Markets, that it bought the crude “from a reputable international trader with a guarantee of title and in compliance with U.S. law.” It added that it had “cancelled further purchases and will not accept delivery of any of the affected crude until the matter is appropriately resolved.”
In a global market thirsty for oil, tanker-loads of crude would ordinarily be sold and delivered expeditiously. Yet the United Kalavrvta is running up about $60,000 a day in fees as it waits in the Gulf of Mexico — stuck in the middle of a dispute more than 7,000 miles away.