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Nick Cunningham

Nick Cunningham

Nick Cunningham is a freelance writer on oil and gas, renewable energy, climate change, energy policy and geopolitics. He is based in Pittsburgh, PA.

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State Department Sends Mixed Signals on Kurdish Oil Exports

State Department Sends Mixed Signals on Kurdish Oil Exports

A week-long drama surrounding the arrival of a Kurdish oil tanker in U.S. waters abruptly ended July 29 when a Texas judge ordered U.S. Marshals to seize the ship.

Judge Nancy K. Johnson of the U.S. District Court for the Southern District of Texas ruled in favor of the Iraqi central government, which argued that the oil was “misappropriated” – i.e. stolen – and that delivery would run contrary to Iraqi law. The United Kalarvta is holding around $100 million worth of Kurdish oil and is sitting near Galveston Bay in Texas.

The ruling is a blow to the Kurdish Regional Government (KRG) in its campaign to erode Baghdad’s influence over its oil sector. Since the invasion of the jihadist Islamic State of Iraq and the Levant, and the near-disintegration of the Iraqi state, the KRG has taken the opportunity to consolidate its grip over key areas of northern Iraq, including Kirkuk and its surrounding oil fields.

The KRG also completed the sale of its first oil shipment in late June, to Israel. Perhaps emboldened by the achievement, Kurdistan sent another tanker to a buyer in the United States. CNBC reported that the mystery buyer of Kurdish oil was Talmay Trading of the British Virgin Islands.

The U.S. has long maintained that oil exported from Iraq should be done under Baghdad’s auspices. In late June, U.S. Secretary of State John Kerry paid a visit to Erbil, the capital of Kurdistan, to urge Kurdish leaders to work to keep Iraq together in the face of ISIS attacks, instead of pursuing a path towards greater independence.

But at the critical moment of decision – as the tanker of Kurdish oil floated off the Texas coast – it wasn’t the Obama administration but a lone judge in Texas who made the call that backed up the U.S. position.

Related Article: As Russia’s Isolation Grows, Oil Companies Caught in Middle

Officially, the State Department has stuck to its line that shared oil resources support a stronger Iraq. “Iraq's energy resources belong to all of the Iraqi people and that is why we have urged the Iraqi federal and sub-national governments to reach an agreement on how to best manage their energy resources,” State Department spokesman Edgar Vasquez told the Wall Street Journal on July 21.

But as the United Kalarvta approached U.S. waters, the official line seemed to soften. State Department deputy spokeswoman Marie Harf said on July 25, “Iraq's energy resources belong to all of the Iraqi people. The U.S. has made very clear that if there are cases involving legal disputes, the United States informs the parties of the dispute and recommends they make their own decisions.”

The wording between the two statements is subtle, but significant. Harf went on to add, “[t]hese are commercial transactions. The U.S. government is not involved in them.” With that, the U.S. appeared to be backing away from its earlier position that the KRG should not sell oil without Baghdad’s approval.

Behind the scenes, while not a full-fledged change in policy, there appears to be an air of resignation among U.S. diplomats. Steve LeVine of Quartz reported on July 24 that the State Department has decided to stop actively fighting the sale of Kurdish oil. Instead, U.S. officials would pursue “passive policy action,” LeVine reported, which consists of discouraging buyers from purchasing oil from the KRG only if they call and ask for advice – no more badgering or warning buyers against moving forward.

The change in tone could open the door to Kurdish oil exports. The Kurdish quest to complete the sale of oil to a buyer in Texas would have granted significant legitimacy to the KRG and its bid for independence, potentially opening the taps to much wider exports, while also contributing to the breakup of Iraq.

For now, the seizure order for the Kurdish oil is a major setback for the KRG and could make it difficult to find buyers elsewhere. But if the shifting U.S. position is any indication, the issue is far from settled.

7/31 Update: The federal judge in the case says she "has no jurisdiction" to order the tanker's seizure because it is 60 miles offshore and beyond the reach of the court's authority. Judge Nancy K. Johnson says the dispute should be settled between the Regional Government of Kurdistan and Iraq's central government.

By Nick Cunningham of Oilprice.com

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  • Lukas on July 31 2014 said:
    The only argument I hear from the State Department against kurdish oil export is that it may lead to the break up of Iraq. To that I can only say that Iraq is already broken. Secondly, what are the US asking for? Baghdad want it to be like it always was, i.e. the kurds having no economic livelyhood and beeing dependant on Baghdads mercy and beggary for leftovers. Is that what the US calls fair. Actually, the US now a good chance of supporting the only country in the region that doesnt hate them.

    Apart from all above, what surprises me is that the US doesnt looka at the legal details. Baghdad has screamed 'Illegal' at all oil investments in kurdistan for years. However, they have never said what articles that support their case. On the contrary, the kurds have all the time pointed out exactly why their case is suppoted by the Iraqi Constitution. Now, the only reasen that the Iraqi Ministry of Oil can do what they do is because Iraq is not a country ruled by law. The government simply ignores the Constitution. Its like Nixon: "when the President does it, it means it is not illegal". Iraq is a de facto failed state.

    I strongly suggest the americans look at the legal arguments!
  • pigeon on July 31 2014 said:
    I don´t understand what US is thinking?

    Iraq is a cup that is broken probably beyond repair and the Kurds are the only sane player in the region

    KRG really wants to be friends with the US and they are going to be a world-player in oil one way or another

    What US is doing now is actually speeding up Kurdistan independence and Iraq breakup

    Further more the kurds need the money to be able to pay salaries (keep the country calm)and keep ISIS from gaining territory in the north (including important oilfields)

    Letting kurds get income from oil is an absolute win-win situation for everybody

    I don´t understand that the Obama-people doesnt get this??

    If kurds can export and be economically independent they don´t need to push for real independence and there is even a chance they are willing to continue beeing a part of Iraq.

    Iraq government would have to treat Kurds and other Sunni tribes with moore respect preferably turning Iraq into a true functional federation

    If Iraq should break up dispite this effort US would have friends (and oil) in kurdistan and US would be on the winning side even with that development

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