How an Iraqi-Kurdish Oil Dispute Could Be Settled at a Court in Texas

For nearly half a year, the government of Iraq has been trying to get an American judge to hear its lawsuit against the Kurdistan Regional Government (KRG) in northern Iraq to gain control of 1 million barrels of Kurdish oil that Iraq says was illegally extracted from Iraqi territory.

Now U.S. District Judge Gray Miller in Houston says Iraq’s lawsuit against the KRG can be argued in his court because the Kurds plan to sell the oil to an American customer.

Photo by Haidar Mohammed Ali/AFP/Getty Images

Photo by Haidar Mohammed Ali/AFP/Getty Images

This is the latest, and perhaps not the last, twist in the story over who owns the rights to oil in Iraqi Kurdistan. In fact, one major twist so far is that Baghdad and the KRG agreed in December that the Kurds could export as much as 550,000 barrels of oil a day from oilfields in their jurisdiction as long as nearly half that amount, 250,000 barrels, was under Baghdad’s control.

As important as that agreement is, however, it isn’t retroactive, so the 1 million barrels of Kurdish oil that have been biding their time since July in the Marshall Islands-flagged tanker United Kalavrvta off the Texas coast remain at issue. The tanker remains about 60 miles off Galveston, outside U.S. waters, in the Gulf of Mexico.

Previously, Miller said he couldn’t hear Iraq’s suit because the alleged misappropriation of the oil occurred in Kurdistan, outside his jurisdiction. At that time, in December 2013, Kurdish oil officials used a pipeline originating in Iraq to ship the oil to the Turkish Mediterranean port of Ceyhan. It was then loaded on the United Kalavrvta and transported to the Gulf of Mexico.

Lawyers representing the Iraqi government adjusted their argument, focusing on the KRG’s direct involvement with an anonymous U.S. buyer. As a result, Miller made a ruling January 7 that meant the lawsuit was in his jurisdiction. “There are specific allegations that it has been sold in the U.S., and the sale of oil in the U.S. creates a direct effect in the U.S.,” the judge ruled.

In his ruling, he dismissed the KRG’s argument that the issue was political, not commercial, and would be more suitably handled by a legal body other than U.S. judiciary. The KRG’s lawyers said this would force an American judge to take sides in a policy dispute that would be addressed more appropriately by Congress or the White House.

But in his ruling, Miller said Baghdad was merely seeking an interpretation of Iraq’s Constitution. “This does not involve political questions, but classic judiciary functions,” he wrote. “The heart of this dispute is to whom the text of the Iraqi Constitution grants the right to export oil, and whether the KRG converted the oil here. U.S. courts regularly interpret other countries’ laws, including constitutions.”

At the same time, Miller said, in deciding the lawsuit, he will apply the laws of Texas covering stolen property because the purported buyer is an American.

Meantime, there’s yet another wrinkle in this unlikely saga. Since the case first came before the federal court in Texas, the value of the oil in the hold of the United Kalavrvta has dropped precipitously. At first, the Kurds had planned to sell it at the going rate of about $100 per barrel at the time of the sale in July – in other words, for a total of about $100 million.

The price of oil is now around half that, and no matter who ends up with the oil, the profit won’t be nearly what it was when the United Kalavrvta set sail from Turkey.

Originally written for OilPrice.com, a website that focuses on news and analysis on the topics of alternative energy, geopolitics, and oil and gas. OilPrice.com is written for an educated audience that includes investors, fund managers, resource bankers, traders, and energy market professionals around the world.

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