US ruling on Kurd oil leaves future of exports unclear

The future of Kurd crude oil exports is not only important for the two governments, but also for the struggling international oil companies operating in the Kurdish region, several of which have ties to the UAE.

The latest twist in the battle between the Kurdish Regional Government (KRG) and Iraq’s central government over control of Kurd oil exports leaves the issue far from clear.

The future of Kurd crude oil exports is not only important for the two governments, which are facing dire financial circumstances, but also for the struggling international oil companies operating in the Kurdish region, several of which have ties to the UAE.

On Tuesday, a US appellate court upheld a previous ruling that required the KRG to give the central government in Baghdad notice of plans to sell oil in the United States.

The long-running dispute stems from the KRG’s efforts last year to market its oil independently after it failed to reach agreement with the central government on a revenue-sharing deal.

The KRG had sold dozens of cargoes of crude oil last year via the Turkish port of Ceyhan, including one that was forced to remain anchored off Houston for months after Baghdad used US courts to rule that it had sovereignty over oil originating in the Kurdish region.

The tanker, United Kalavryta, was finally acquired by parties in Israel, which meant the latest court decision was important mainly for what it means for future Kurd oil sales to the United States.

However, the two governments had different readings of the court ruling.

An Iraqi oil ministry official was quoted by Bloomberg as saying that the decision cleared the way for Baghdad to halt Kurd oil sales via US courts in the future.

The ministry of natural resources in Erbil took a different view.

“The state of play remains the same,” said the ministry yesterday.

“There is no prohibition on the KRG’s export of oil to the United States or elsewhere, and the KRG will continue to export hydrocarbons as the Iraqi constitution permits.”

There had been signs this year that the two governments might resolve the dispute after they reached agreement for the Kurds to market all oil via the State Oil Marketing Organisation and receive 17 per cent of Iraqi government revenues in return.

But the deal broke down as the parties continued to bicker over the details of how oil was being counted, including oil from Iraq’s Kirkuk field in the Kurdish region.

Meanwhile, the finances of both governments have deteriorated amid sinking oil prices and ongoing war in the country.

The KRG said oil exports last month fell about 100,000 barrels per day to 470,000 bpd because of a nine-day pipeline outage after it was bombed.

The KRG had hoped to alleviate the increasingly dire financial situation for international oil companies by agreeing to make payments from this month.

Two weeks ago, the Kurdish oil ministry said it allocated payments of US$30 million each to the operators of its largest fields, Taq Taq and Tawke, and $15m for Sheikhan, another large field, which together account for the bulk of its oil exports and foreign earnings.

Taq Taq is operated by Genel, which is chaired by the former BP chief Tony Hayward, in partnership with Addax Petroleum, a unit of China’s Sinopec. Tawke is operated by DNO, which is controlled by the UAE’s RAK Petroleum. Sheikhan is operated by Gulf Keystone Petroleum.

The companies have publicly welcomed the promised payments and their share prices surged after the announcement.

But the dispute over the control of oil exports adds another layer of uncertainty as their costs in the region continue to run well ahead of the paltry and intermittent payments.

Meanwhile, Sharjah-based Dana Gas has made final arguments to the international arbitration court in London for back payments of more than $2 billion it is owed by the KRG. Dana Gas is not an oil exporter, but it operates the Khor Mor and Chemchemal gasfields held through a 40 per cent share of Pearl Petroleum,

The court has ruled in favour of Dana Gas in its long-running dispute and will deliver its judgment in a few weeks. Dana Gas’s only practical course of action to recover the arrears would be to try to seize KRG’s assets in foreign jurisdictions – the disputed oil cargoes it is marketing internationally, that is.

Patrick Allman-Ward, the chief executive of Dana Gas, said he would prefer to reach a negotiated settlement with KRG.

But the international companies have all said they were running out of patience as their finances were being squeezed and had stalled any future investment in the region until reliable payments could be maintained.

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