Kurds Claim to Stranded Oil May Turn on When Iraq Lost Control

Aug 22, 2014 2:15 pm ET

Aug. 22 (Bloomberg) – Iraq and the Kurdistan Regional Government must wait awhile longer for a U.S. judge to decide if he has authority to let federal agents seize $100 million worth of Kurdish crude waiting in a tanker off the Texas coast.

Lawyers for the Iraqi Ministry of Oil convinced a magistrate judge last month to issue an arrest warrant for the 1 million-barrel cargo if the tanker enters U.S. territorial waters. That order would let U.S. marshals store the oil ashore at Iraqi expense until the dispute is resolved.

U.S. District Judge Gray Miller, who now presides over the case, told lawyers at a hearing today in Houston federal court that he needs more time for his decision, which will turn in large part on where and when Iraq lost control of the oil.

If control of the crude changed when it was loaded onto the tanker in Turkey, Miller may have authority to decide the dispute under U.S. maritime laws governing property stolen at sea. If Iraq lost control of the crude when Kurds initially pumped it from oilfields in northern Iraq and exported it through Turkey in an Iraqi-owned pipeline, Miller said he would only have authority if the Kurds agree to submit to U.S. legal jurisdiction, which they’ve refused to do.

“The question is where we first exercised control over the oil and that happened in Iraq,” Harold Watson, a U.S. lawyer for the Kurdish government, said at the hearing on the KRG’s request to throw out the seizure order. “Is admiralty law going to govern this dispute? Of course not. This dispute is going to be governed by Iraqi constitutional law.”

Ownership

In court papers, both sides stated they’d prefer to settle the ownership issue in Iraq’s Supreme Court, where the national oil ministry is already suing the KRG on claims it illegally misappropriated oil that belongs to the national government.

The two sides are locked in a protracted legal fight there over rights to Kurdish oil production and billions of dollars in overdue payments the national government owes Kurdistan for war- crimes reparations and oil royalties. The U.S. government recognizes Kurdistan as part of Iraq.

“What we want is for that oil to be held pending the outcome of the litigation in Iraq, which is where it needs to be,” Phillip Dye, an American attorney for the Iraqi oil ministry, told the judge. “It’s the only hold we have over them. If this court allows this oil to be sold, they’re never going to show up in Iraq” so that court can determine if the KRG can legally export oil from Kurdish territory.

The case is Ministry of Oil of the Republic of Iraq v. 1,032,212 Barrels of Crude Oil, 3:14-249, U.S. District Court, Southern District of Texas (Galveston)

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