Defiant Kurdistan starts international oil exports

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Kurdistan has started selling oil independently in international markets after striking export deals with foreign oil majors last year, a Reuters report said on Tuesday.

Baghdad is yet to comment on the latest development, which analysts say will enrage the government as it is still locked in a battle with Exxon Mobil over its independent deal with Kurdistan last year to explore for oil in six Kurdish blocs. Iraqi Kurdistan has been vying for greater autonomy and resisting central government’s claims that it alone has the right to market Iraqi oil and gas products.

The Kurdistan Regional Government (KRG) officials involved Trafigura and Vitol, two of the world’s largest trading houses, in their trade, making it difficult for Baghdad to retaliate, as it depends on those firms for a proportion of its refined oil imports like gasoline and diesel. Iraqi central government would have to pay higher prices for its fuel if it decides to shop elsewhere.

Powertrans, a Trafigura intermediary, procured the first cargo of Kurdish light oil — known in the industry as condensate — in October. The oil was trucked across the country from a Kurdish field to Turkey, where it loaded at the start of the month.

Vitol, a Dutch multinational energy and commodity trading company, became the second major oil firm to buy Kurdish oil without getting Baghdad involved, picking up a second 12,000 tonne cargo of condensate for loading at the end of the month. At around $890 a tonne, each shipment is worth over $10 million.

Iraqi officials say any deals independently agreed with Kurdistan are illegal and trading Kurdish oil and gas products without the central government’s consent amounts to smuggling.

“Iraq maintains its right to legally pursue all those who participate in smuggling the property of the Iraqi people locally or internationally,” Iraq’s government spokesman Ali Dabbagh said about the Kurdish sales of oil to the Swiss trading houses.

Trafigura declined to comment, while Vitol confirmed it had bought a parcel of Kurdish origin for loading in Turkey, declining to comment any further on the deal.

“The small parcel was bought in a public tender, FOB Toros terminal, Turkey. No further comment,” spokesman Mark Ware said.

In addition to supplying Baghdad with products, Vitol also has two term deals to buy Iraqi crude in 2012 for a total of around 22,000 barrels of oil per day (bpd).

“This flow (exports from Kurdistan) is meant to be huge. Crude, naphtha, LPG, condensate, but yes, very political,” an oil trader told Reuters when asked to comment on the logic for risking relations with Baghdad.

So far, Kurdistan’s export volumes are tiny in comparison to its daily exports via national pipelines, moving around 1,000 tonnes of oil per day (about 8,000 bpd) to Turkey by truck, but deliveries are on the rise.

A Kurdish industry source in Erbil said condensate volumes were expected to reach 1,500 tonnes per day (about 12,000 bpd) by the end of October and more trucks would be made available towards the end of the year.

Kurdistan began its own exports of oil over the summer, swapping condensate for refined products such as diesel and kerosene with Turkey to help plug a product shortfall it says was created by Baghdad.

Kurdistan, autonomous with its own government and armed forces since 1991, gets central government funding and uses national pipelines to ship its oil.

On Monday, Iraqi Kurdistan said it had agreed to raise exports to 250,000 barrels of oil per day (bpd) in 2013 if Baghdad pays operators in the autonomous region.

Many issues need to be resolved as the recent agreements solve only a few points between Baghdad and Kurdistan that have a long-standing feud over oil exports, energy policy and territory.

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