Iraq warns against unloading tanker of Kurdish crude anchored off Galveston

Iraq’s lawyers Monday warned a Houston maritime company against unloading a controversial load of Kurdish crude oil from a tanker anchored off the coast of Galveston, arguing the cargo is stolen property.

The letter requested that Houston-based SPT inform the Iraqi government if asked to transport any of the crude and return any cargo offloaded from the tanker. The lightering company said it has never been contacted about offloading the crude and has no plans to do so.

“This seems to be a legally charged issue at this point, and the last thing I want to do is get embroiled in some massive political dispute and have our name dragged through the mud,” company President Simon Duncan said in an interview with Fuel Fix.

Vinson and Elkins, the global law firm that authored the letter, did not return repeated requests for comment.

The United Kalavryta left the Turkish port in June carrying crude oil from a newly opened pipeline in the Kurdish oil fields in Iraq that bypasses the Iraqi state oil company. The shipment has infuriated Iraq, which argues that the oil was smuggled out of the country and says its state oil company must broker all oil from within its borders.

The U.S. Coast Guard on Sunday cleared the vessel to offload its cargo, potentially paving the way for an import that could complicate U.S. relations with Iraq, which has threatened to sue any buyers, but as  of Monday afternoon, offloading had not started. And it’s not clear when it will or whether the threats of legal action may force the tanker to offload the cargo elsewhere.

“It wouldn’t surprise me if it ends up sitting there for a little while or ends up going to another port,” said Jamie Webster, senior director of global oil markets for IHS, an energy analyst firm.

The buyer has not been identified. Reuters reported the ship is carrying 1 million barrels of crude worth $100 million based on international prices.

While the U.S. government, which backs a central unified Iraq government, discourages companies from buying crude from the Kurdish Regional Government, it has not banned such purchases outright, Reuters reported.

The U.S. State Department has declined to intervene in a possible sale, calling the matter a private transaction.

Still, if the deal goes through, the purchase could could mark a significant economic leap toward independence for the semi-autonomous Kurdish region of Iraq, said Ed Hirs, who teaches energy economics at the University of Houston.

“Without economic hard currency and established trading partners, it would be very difficult for the Kurdish region to become separate, autonomous and sovereign, or basically secede from Iraq,” he said.

But, Hirs said, without knowing the buyer, it’s tough to say how much the transaction could complicate U.S. Iraqi relations.

The Kurdish Regional Government has had mixed results selling its crude. Of the four tankers that set sail carrying 1 million barrels of oil, including the ship now anchored off the coast of Galveston, only one successfully sold its content, reportedly to a buyer in Israel, according to Houston investment banking firm Tudor, Pickering, Holt & Co. The KRG sold the cargo for $93 million but has yet to receive proceeds from the sale, the firm reported.

Coast Guard crews boarded the United Kalavryta on Sunday to conduct routine safety inspections and determined the vessel met all requirements, paving the way for the tanker to begin offloading crude, said petty officer Andy Kendrick, a spokesman for the U.S. Coast Guard Houston-Galveston sector.

The vessel is anchored about 60 miles off the coast of Galveston and has too deep a draught to transit the Houston Ship Channel. It’s anchored in an area reserved for too-large tankers to offload cargo onto smaller tankers, which then bring the shipment to port.

None of these smaller vessels had yet to request a Coast Guard inspection by Monday morning, a necessary step for them to dock, Kendrick said.

It’s not known which vessels, or how many, are planning to take the United Kalavryta’s disputed cargo. On Monday morning, the Galveston-Texas City pilots had no pending orders from oil tankers requesting their services to guide the vessels into port.

Because of the political sensitivity of the transaction, the Coast Guard worked closely with the U.S. Department of Homeland Security, the state department and the U.S. National Security Council but no additional measures were necessary, Kendrick said.

The vessel notified the Coast Guard of its planned arrival last week, Kendrick said.