Judge lifts order for seizure of disputed oil from tanker

Ruling in favor of the Kurdistan Regional Government in a dispute over oil from Iraq, a federal judge Monday tossed out an order mandating that U.S. marshals seize any crude that reaches U.S. waters from a tanker anchored off Galveston’s coast for nearly a month.

While there’s no longer a court order stopping the United Kalavryta from offloading 1 million barrels of disputed oil,  however, it’s unlikely the crude will come to shore in the United States because Iraq has threatened to sue any company that touches the cargo it considers stolen property.

In the ruling handed down late Monday afternoon, U.S. District Judge Gray Miller sided with Kurdistan, which argued that U.S. courts lacked the authority to seize the crude because the oil ownership dispute traces back to where oil was first pulled from the ground, not the waters off the United States.

But Miller  left the matter open for further litigation, allowing Iraq’s lawyers 10 days to file an amended complaint.

The United Kalavryta has not offloaded its cargo, according to ship tracking data updated late Sunday night that shows the vessel’s draft hasn’t changed.

The tanker arrived off Galveston’s coast in late July, carrying  crude Iraq says was smuggled out of the country through a pipeline that bypasses the state oil company, which claims the right to broker all deals for Iraqi crude. After Iraq sued to stop the cargo from being offloaded in the United States, a U.S. magistrate ordered marshals to seize any crude offloaded and brought near shore within the court’s jurisdiction.

Kurdistan’s attorneys later intervened, arguing the court lacked jurisdiction in the case, which hinged on where Iraq lost possession of the oil it claims as its own.

In his ruling, Miller agreed with Kurdistan’s argument that possession took place on Iraqi soil when the Kurds pumped the oil from the ground in the semi-autonomous region of Iraq and loaded it onto a pipeline headed to the Turkish port of Ceyhan on the Mediterranean Sea, months before the crude was loaded onto the tanker. He also denied Iraq’s attorneys request for permission to gather more evidence, including who purchased the crude.

Although Miller found the court has no maritime jurisdiction over the case, the legal dispute is unlikely to disappear from U.S. courts. The judge said Iraq may be able to file a claim directly against Kuristan Regional Government  under the Foreign Sovereign Immunities Act, a U.S. law that governs how foreign entities may be sued, opening the door for a new round of litigation in an ownership battle that has been playing out for years in Iraqi courts.

The attorneys in the case could not  be reached for comment late Monday.

While Kurdistan said in legal briefings that it plans to bring the crude to shore soon, Iraq’s legal threats and the ensuing media attention may dissuade U.S. companies from handling the cargo.

Because the United Kalavryta is too large to travel through the Houston Ship Channel, smaller vessels would have to offload the oil and bring it shore in a process called lightering. Days before the tanker arrived near the United States, Iraq’s attorneys sent a round of letters warning maritime companies to return any cargo lightered from the tanker.

Those threats prompted the company hired to perform the job to ask a federal judge for permission to get out of the contract. A judge granted the request by lightering company AET Offshore Servicest, agreeing with its argument  that  fulfilling the job would put the company at serious legal risk and hurt its business.